Some prices finally fall

After months of defying the general economic slowdown, suppliers of factory equipment and tools finally show nascent signs of deflation. Three industries dropped prices in the 12-months ending September 2001. Prices of handsaws and related saws dipped 0.3%. Prices of metal cutting machine tools fell 0.6%. And average product prices in the transformers industry dropped 0.7%.

It's about time, too! That's because end-market demand for many industries that make equipment and tools have entered the recession zone. Among the 19 industries that we track in the factory tools arena, ten industries saw their end-market growth decline in the 12-month period ending September 2001. Some of the biggest shifts include a 3.1% decline in end-market demand for the industry that makes mechanical power transmission equipment for industrial machinery (SIC 3568). Likewise the industry that makes speed changers, drives, and gears (SIC 3566) also saw end-market demand head south, down 3.1%. Finally, the machine tools accessories (SIC 3545) industry saw end-market growth slow from a positive 4.3% gain in the 12-months ending June 2001 to a negative 0.5% in the 12-months ending September.

Inflation trends in costs and prices have pumped up margins to above average levels in 11 industries. Those sporting an A or A⁺ margins grade and which are also experiencing end-market demand slowdowns make excellent targets for additional price concessions. For example, the power transmission (SIC 3568) industry has enjoyed a combination of price hikes and manufacturing cost cuts, so prices have room to fall 4.8% before margins return to average levels.