Reading The Pulse Of The Precision Machined Products Industry, July 2002
We seem to have entered a period that could be characterized like the movie, 'The Good, The Bad, And The Ugly.' The good news for the precision machined products industry is that as of April, we have finally put together back-to-back months of industry-wide sales increases per PMPA's index of sales. In fact, this is the first time since March of 1999 that we ended up with 2 consecutive months of gains in this index. The downside to this is that we continue to be off from what PMPA's 2002 Forecast projected for the first 4 months of 2002, and also considerably down for the year-to-date January-April as compared to last year for the corresponding period.
The Good, The Bad, And The Ugly
We seem to have entered a period that could be characterized like the movie, "The Good, The Bad, And The Ugly." The good news for the precision machined products industry is that as of April, we have finally put together back-to-back months of industry-wide sales increases per Precision Machined Products AssociationMPA's index of sales. In fact, this is the first time since March of 1999 that we ended up with 2 consecutive months of gains in this index. The downside to this is that we continue to be off from what PMPA's 2002 Forecast projected for the first 4 months of 2002, and also considerably down for the year-to-date January-April as compared to last year for the corresponding period.
Historically, during down periods in our industry, we anxiously wait for that time when the monthly PMPA-produced line chart shows 3-month and 12-month moving averages of industry-wide sales intersecting when both are on the way up. This has been a clear indicator in the past of future expansion within our industry. As was indicated in PMPA's April Business Trends Report to its members, we did achieve "half a loaf." That is, these two lines intersected at the point when the 3-month moving average was shooting up, but the 12-month moving average was plateauing. Only the future will tell us what this truly means. However, based on the back-to-back sales increases, and the fact that the 3-month and 12-month moving average sales lines intersected when neither were headed down, suggests nothing but positive things for the near future. Hopefully, in the months ahead we can look back and say that this was the real beginning of industry-wide sales improvement.
Of greater impact to our industry, and certainly what we are all hearing about, is that the "dollar is down." As of this writing, on a trade-weighted basis versus other major trading partner currencies, the U.S. dollar has lost roughly 6 percent of its value. Industry has been waiting for the value of the dollar to drop for some time, as this makes our products cheaper to sell overseas and imports more expensive. Many forecasters are looking for this to be only the beginning and expect modest weakening of our currency in the coming months.
However, not everyone is cheering the fact that the dollar is down. Let's take a look at both sides of the coin—the good and the bad (and possibly the ugly)—in regards to the value of the dollar. First of all, there are obvious reasons why the dollar is headed down. First, of course, is the overall anemic U.S. economic growth forecasted for the near future versus the more robust views seen several months ago. Probably second to this is the recent lackluster performance of the U.S. stock market, and third is the problematic protectionist trade moves by the U.S. government.
Now let's take a look at some of the additional reasons why the dollar is down: One is what is taking place in overseas' markets. The long awaited turnaround of the Japanese economy seems to be starting to take hold, raising the value of the yen compared to the U.S. dollar. Also seen are the signs of a turnaround and the political changes in the European community causing the Euro to increase in value against the U.S. dollar. The ugly in this whole equation is the heightened concern, and recent developments, in the Middle East; the urgency in the warnings of future terrorist attacks on U.S. soil; and the heightened tensions between bitter enemies (and nuclear powers) India and Pakistan.
As noted previously, the decline of the U.S. dollar versus other major currencies is good for our industry and manufacturing overall, and especially good for those who do a lot of global exporting. As PMPA has alluded to throughout this last year of downturn, our No. 1 competitor is the "value of the dollar." Now, U.S. companies that sell goods globally (many supplied parts by the precision machined products industry) can be more competitive with foreign buyers, working with currencies that have increasingly greater purchasing power versus the dollar. Goods produced here and priced in dollars now become a better value or bargain in other countries versus those same products made and sold in those countries. However, you can also flip the coin and say that the weaker dollar is, in fact, "bad news" for U.S. and foreign companies importing goods for sale in this country. These imported products that are now more costly in the United States, while bad news for importers, are good news for those producing the same goods in the United States. Obviously the No. 1 industry that comes to mind is the auto industry. Chrysler, Ford and General Motors can now breathe a little sigh of relief because they are a little more competitive than they were just a few months ago. But what about the risk of inflation, with more American goods being bought at higher prices?
Where will the dollar go in the near future? As a result of depressed economic conditions in the United States, the depressed stock market, and continued weak corporate earnings, there is concern that foreigners will soon look elsewhere to invest, thus driving down the value of real estate, the stock market and the dollar. Could this happen? Possibly key to this whole performance issue in the near future are corporate earnings and the U.S. stock market. A rebound in U.S. stocks and a brightened corporate profit outlook in the future will most likely blunt any sizeable falloff in foreign investment.