June Machine Tool Orders Remain Strong

More machines worth more money are being sold, and the trend is predicted to accelerate.


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� According to USMTO, machine tool orders in June 2012 were 2,045 units and $418,507,000. This is the fifth consecutive month that machine tool sales were more than 2,000 units. The last time there was a streak longer than five months of more than 2,000 units sold per month was in the second half of 1998. That streak lasted from August 1996 to November 1998. During that incredibly strong run of machine tool sales from 1996 to 1998, the inflation-adjusted average price of a machine was $162,280. If we compare that average price to the one from the current run of strong sales (which I lengthened to the last 11 months, since 10 of those months have had sales of more than 2,000 units), then we find that the inflation-adjusted average price of a machine is $198,900, or 22.6% higher. So, not only are we seeing a high number of machines being sold, but each machine sold is worth significantly more. This is probably due to a number of factors, including demand outpacing supply and the advanced technology of machines today compared to machines of 15 years ago. Because machines are so much more productive today, spending an additional $36,000 doesn’t seem like that much when compared to the cost of hiring an additional employee today.
The annual rate of change for machine tool sales continues to grow more slowly. This is not unexpected at this point in the cycle. However, the two most important leading indicators for machine tool sales are pointing in different directions. Industrial production has grown at a rate of more than 11% five of the last six months, which is a very strong rate of growth historically. The annual rate of change has grown faster each of the eight months. This is very positive for machine tool sales and indicates that we should see growth in machine tool sales accelerate again sometime between October 2012 and April 2013, if past trends prove to be accurate. On the other hand, exchange rates are pointing to continued slower growth and contraction in machine tool sales. The dollar against both major currencies and all world currencies is growing faster. Typically, as the dollar gains strength machine tool sales slow. However, one of the major themes in the metalworking industry is re-shoring, which might help counteract the strengthening dollar.