Demand slows and bargains grow
Staff -- Plant Engineering, 5/1/2001
The slowing economy is taking its toll on manufacturers and may be creating opportunities for plant engineers to bargain for better deals. All 19 industries that make factory construction and maintenance supplies are registering slowdowns in end-market growth. Most notably, in the 12-mo period ending February 2001, end markets that use products from sawmills fell 0.1%, and end markets for the heating equipment industry declined 1.67%. Both these industries are struggling with low inflation-adjusted margins.
Four industries in our construction supplies market basket remain prime targets for price cuts because margins are strong while demand is slowing. The millwork (SIC 2431), hardwood plywood (SIC 2436), steel pipe and tubes (SIC 3317), and vitrified clay sewer and other structural clay products (SIC 3259) industries all enjoy A or A+ margin grades, according to our industry cost escalation model. Remember, an A+ grade means the combination of rising product prices and more slowly rising or falling manufacturing costs are blessing the A+ industry with record-high margins.
| Industry | SIC | Average Product Prices¹ Change, %, During 12-Mo ending... Nov 00 | Average Product Prices¹ Change, %, During 12-Mo ending... Feb 01 | Direct Mfg. Costs² and Margins Grade Costs are... | Direct Mfg. Costs² and Margins Grade Grade | Growth in U.S. End Markets³ Change, %, During 12-Mo Ending... Nov 00 | Growth in U.S. End Markets³ Change, %, During 12-Mo Ending... Feb 01 |
| General sawmills and planing mills | 2421 | -4.12 | -8.40 | Falling | D | 1.72 | -0.01 |
| Millwork | 2431 | 0.75 | 0.56 | Rising | A | 4.77 | 3.38 |
| Hardwood veneer and plywood | 2435 | 1.77 | 1.51 | Stable | A+ | 3.19 | 1.75 |
| Softwood veneer and plywood | 2436 | -15.17 | -17.71 | Falling | F | 3.19 | 1.75 |
| Metal partitions and fixtures | 2542 | 0.48 | 0.61 | Stable | B | 5.14 | 3.37 |
| Paints and allied products | 2851 | 2.13 | 2.19 | Rising | D | 4.10 | 1.24 |
| Flat glass | 3211 | 1.29 | 0.98 | Rising | F | 28.97 | 28.32 |
| Other structural clay products | 3259 | 3.70 | 5.60 | Stable | A+ | 5.41 | 4.06 |
| Gypsum products | 3275 | 1.09 | -11.58 | Stable | F- | 1.86 | 0.49 |
| Mineral wool | 3296 | -1.96 | -3.18 | Stable | D | 3.92 | 2.26 |
| Steel pipe and tubes | 3317 | 4.13 | 4.13 | Stable | A | 6.48 | 4.29 |
| Plumbing fittings and brass goods | 3432 | 2.69 | 2.26 | Stable | B | 4.63 | 3.25 |
| Metal doors, sash, and trim | 3442 | 1.76 | 1.81 | Stable | C | 4.29 | 2.89 |
| Sheet metal work | 3444 | 1.10 | 1.26 | Stable | C | 25.24 | 23.87 |
| Refrigeration and heating equipment | 3585 | -0.28 | -0.19 | Stable | F | 2.59 | -1.67 |
| Current-carrying wiring devices | 3643 | -0.69 | -0.62 | Stable | F | 21.66 | 20.58 |
| Noncurrent-carrying wiring devices | 3644 | 0.85 | 0.84 | Stable | C | 21.66 | 20.58 |
| Commercial lighting fixtures | 3646 | 0.00 | 0.36 | Stable | D | 6.29 | 4.82 |
| Environmental controls | 3822 | 0.15 | 0.27 | Stable | D | 4.49 | 2.05 |
¹ Average product price changes are calculated from the producer price index for each 4-digit SIC (standard industrial classification) industry from the U.S. Bureau of Labor Statistics.
² Analyses of each industry's direct manufacturing cost changes are from Thinking Cap Solutions, Inc.'s proprietary Industry Cost Escalation (ICE) model. The "grade" indicates that recent price/cost changes have produced record high (A+) margins to average margins (C) to record low (F-) margins for the average producer in an industry. Grades of A to A+ mean plant engineers may be able to strike a better bargain with suppliers and better control plant costs.
³ Growth in U.S. end markets data are from the ICE model and are estimates of output for the domestic end markets which purchase a given industry's products.
All data prepared and presented by Thinking Cap Solutions, Inc., Port Angeles, WA (telephone: 360-452-6159; e-mail: ebaatz@ice-alert.com).
