In a general sense, machine tools represent the base of the manufacturing chain. They’re usually not on the assembly line. They’re in the local mom-and-pop tool and die shops that dot the Midwestern landscape. Machine tools make the things that hold everything else together.
In 2010, investments in these tools exploded. As you can see in the chart, sales increased at a faster rate than at any time in the last four decades, at least.
We already knew that manufacturing is on the rebound in this country. But what can we learn from this explosive growth in machine tool sales?
First, the chart tells us more about where we’ve been than where we’re going.
On the MMS blog, Kline writes:
On annual basis, unit sales were up 45.8 percent and real dollar sales were up 60.3 percent in 2011 compared to 2010. While the annual rate of change continues to show slower growth, the current rates of change are still historically high.
We called Kline for an explanation of why the change has been so dramatic. He says it’s because the recession of the past few years was the worst on record for sales of machine tools.
Machine tool sales (in January of 2009) were basically the lowest monthly unit total ever – at least since probably 1900. They were shockingly low. When you’re comparing those low unit levels to now, that’s what’s driving that rate of change so much higher than before.
It’s worth remembering that while GM and Chrysler were getting all the headlines for their bankruptcy process, thousands of small manufacturers were simply closing up shop. They weren’t buying new machines, and, for the companies that survived, there was suddenly a glut of used machines on the market. Combine that with the low orders from companies further up the chain, and you get the worst sales numbers ever for machine tools.
But Kline says there’s more to the story. The growth in machine tool sales may represent more than just a recovery from a historic downturn.
“There is a chance that we could see strong capital equipment sales for a long time,” he says.
Right now, a lot of factors are supporting manufacturing in America. One of the biggest is that the dollar continues to be relatively weak. When that happens, making things here is cheaper, and selling them overseas reaps a bigger profit.
Kline says manufacturers that once built things overseas are bringing some of that work home. Last decade, the big trend was to offshore work. Now, Kline says many companies are finding that the savings they hoped to get from offshoring haven’t really materialized, because:
- Costs were never really that much lower overseas, once you factored in shipping and other logistics.
- Quality control is a lot more difficult when the factory is overseas.
- Labor costs in places like China have been rising.
- The value of the dollar has been declining, so U.S. manufacturing is cheaper than it used to be.
Add it all up, and the future is starting to look pretty bright for small manufacturing businesses in the U.S. And for the people who sell them machines.