Reports

REPORT ON BUSINESS TRENDS - April 2009

Tuesday, May 19, 2009
Bulletin Number: BT-0904

“It was the best of times, it was the worst of times,” so opens Dickens’ classic, A Tale of Two Cities. PMPA’s Index of Sales of precision machined products for April sank precipitously to 68, its lowest level ever. However, that ‘aggregate’ index belies the fact that one-fifth of the shops reporting (22) had double digit sales increases in April. The average sales increase reported for these 22 shops was UP 34.8% over the prior month. As in Dickens’ classic, the other city is quite a different picture. Forty-four (44) respondents had double digit decreases compared to the month before; those shops averaged a 25.9% decline from March’s already low level of sales. The remaining half of respondents (66 shops) fell into the range of single digit declines or increases. The aggregate index of 68 for April is the lowest value that we have published going back to 2000. This extremely low value for our industry’s sales shows us the damage that our industry has sustained. That index of 68 represents a 32% decline to year 2000 base sales of 100%.

Almost half of the respondents (49%) anticipate sales declining over the next three months, 35% anticipate sales remaining at current levels, and 16% expect sales to improve. Ninety-six percent (96%) expect lead times to remain the same or lower; 94% expect employment to remain the same or decrease, and 85% expect profitability to remain the same or further erode.

Raw material shipments reflect our low sales. Carbon Bar statistics for April from U.S. metals service centers mirror our industry’s low levels. April bar inventories came in at 834,500 tons, a 2.1% decline from 852,000 tons in March and the lowest level in 22 years. Months’ supply of bar products at U.S. service centers came in at 3.7 months’, unchanged from March. Average daily bar shipments came in at 10,100 tpd, 2.9% below the 10,400 tpd in March and the lowest level we have on record. Average daily shipments declined 52.8% from year-ago levels.

  • The PMPA “Index of Sales,” for April is 68. The three month moving average of sales is once again trending even lower than we have seen so far.
  • The “Average Length of First Shift (Hours)” continued to contract as shops adjust to the current reality. April’s 36.6 is down 5.4 hours from the 2008 average. Forty- nine (49%) percent of companies reported less than 40 hour first shifts. Ninety-six percent (96%) of respondents were at 40 hours or less. Only 4% of shops reported hours in excess of 40 for their first shifts in April.

    • Opinions for the next three months compared to today: (See Graphs on Page 4)

  • Net Sales: Those expecting sales to remain level or decrease are back in the majority at 84% of respondents.
  • Lead Times: Ninety- six percent (96%) expect lead times to remain the same or decrease.
  • Employment: Ninety-four percent (94%) of this month’s respondents are expecting employment to remain the same or decrease.
  • Profitability: Fifty-seven percent of respondents expect profitability to remain the same or improve over the next three months.

    • Current Environment: This report recognizes the current low levels of sales in our industry. Raw materials consumption as indicated by Metal Service Center shipments is congruent with our current low levels of sales. As we mentioned, one fifth of our respondents (22 shops) had significant, double digit sales increases. These included swiss, multiple spindle automatic, cnc, automotive, high- and low- volume focused shops.

    In the past, we have mentioned that the sales of our industry (NAICS 332721) correlate well to Total Vehicles Assembled and to Housing starts. Neither of these indicators currently gives us any near term optimism. However, there are some hints of positive economic news. Investors are no longer in a panic mode, and yields on corporate bonds seem to indicate greater tolerance (understanding?) of risk. The Purchasing Managers Index (PMI) for April was 40.1. This tells us that while manufacturing was still contracting, (any number under 50 is contraction) the April indicator was up 3.8% from March’s 36.3. Meaning: the rate of contraction is slowing.

    Consumer expectations are positive according to the University of Michigan survey, and it remains our personal experience that retail sales are ongoing (family member works in retail) and my “How long do I have to wait for a seat at Applebee’s, Ruby Tuesday’s and how many families bring kids?” indicator tells me that many people are still out there spending. So the recession that we all see on TV is not the same recession that some of us see when we go to town, or that 22 of our shops saw last month on our sales reports.

    Opinion: Three questions I would ask you if you wanted to be among the cadre of “Double Digit Increase in Sales Shops” next month:

    What companies in what industries are your sales people talking to?

    What are you currently working on to improve your shop’s throughput to be more competitive when you quote?

    Are you up-to-date on all training, safety, and regulatory issues so you don’t get distracted when it’s time to resume production?

    Tools you can use: Roughly half of the 22 shops showing the double digit sales increases in April were shops that are participating in PMPA’s iLumen online benchmarking. We don’t claim statistical significance, but the proportion participating is far greater than that of the broader membership.

    NOTE: One hundred and twelve (112) participants this month.

    Contact Name: Miles K. Free
    Contact Email: mfree@pma.org
    Contact Phone: (440)526-0300

    Related Files:
    Net Sales Index and Graphs