Price hikes expected for some industries, but not all

Twelve out of 19 industries that supply factory equipment and tools are under extreme pressure to raise prices. Plant engineers won't have to worry too much about higher prices ahead. Consider the situation in the motors and generators industry. In 2003, average prices for motors edged up 0.5%. Unfortunately for producers, this increase failed to offset the impact of a 2% hike in the cost of ma...

03/10/2004


Twelve out of 19 industries that supply factory equipment and tools are under extreme pressure to raise prices. Plant engineers won't have to worry too much about higher prices ahead.

Consider the situation in the motors and generators industry. In 2003, average prices for motors edged up 0.5%. Unfortunately for producers, this increase failed to offset the impact of a 2% hike in the cost of making a unit of industry output. As costs outran prices, margins in SIC 3621 fell for three straight months at the end of the past year, and margins finished the year at a 10-year low.

With recent margin losses taken into account, the typical motors manufacturer spends an estimated $66.35 on manufacturing-related activities for each $100 of product sold. That's somewhat high from historical perspective. Target analysis indicates that in order to lift current margins to normal levels, the motors industry needs a 2.9% price hike. Although demand trends favor suppliers and labor costs provide a good argument, manufacturers will push through meager 0.2% and 0.4% price hikes in 2004 and 2005, respectively.

This doesn't mean you can rest. Price hikes will be more aggressive for some others. The pumping equipment industry is forecast to increase tags by 2.2% in 2004. That price jump likely will stick despite the fact that margins in SIC 3561 are doing just fine.

In four other industries, prices will increase between 1.9% and 1.7% this year. The culprits: mechanics' hand tools, hand saws, other power transmission equipment, and welding apparatus. The first three of the four will be most motivated by the fact they are seeing below-average returns for every dollar they spend on manufacturing.

Price/cost/demand roundup

Average Product Prices1Change, %, During 12-Mo Ending...

Direct Mfg. Costs2and Margins Grade

Growth in U.S. End Markets3Change, %, During 12-Mo Ending...

Industry

SIC

Sept 03

Dec 03

Costs are...

Grade

Sept 03

Dec 03

NC means data could not be computed.
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).

Other Hand and Edge Tools

3423

-0.66

-0.20

rising

D

0.39

0.11

Hand Saws and Saw Blades

3425

1.52

0.86

rising

F-

0.48

-0.13

Other Hardware

3429

0.32

0.38

rising

F

0.08

0.05

Other Power Transmission Equipment

3568

0.78

0.42

rising

F-

-0.71

-0.29

Conveyors and Conveying Equipment

3535

0.24

0.43

rising

F

-1.12

-0.93

Hoists, Cranes and Monorails

3536

1.31

1.40

rising

D

-2.62

-1.72

Industrial Trucks and Tractors

3537

0.86

1.04

stable

F-

-1.14

-1.63

Metal-Cutting Machine Tools

3541

-1.87

-1.45

stable

C

-1.87

-1.02

Machine Tool Accessories

3545

0.24

0.32

rising

F-

6.09

7.85

Power Driven Hand Tools

3546

-0.08

0.03

rising

F-

-0.96

-1.17

Welding Apparatus

3548

0.56

0.80

rising

F

-1.49

-1.56

Pumps and Pumping Equipment

3561

1.14

1.29

stable

B

-0.28

-0.48

Air and Gas Compressors

3563

0.99

0.91

stable

B

-0.28

-0.48

Speed Changers, Drives and Gears

3566

1.46

1.51

stable

B

-0.71

-0.29

Transformers

3612

-0.33

0.18

rising

F-

-0.62

-0.27

Motors and Generators

3621

0.52

0.45

stable

F-

4.71

5.99

Process Control Instruments

3823

2.23

2.52

stable

A

0.06

0.09

Fluid Meters and Counting Devices

3824

2.25

2.00

stable

A

0.06

0.09

Instruments to Measure Electricity

3825

0.37

-0.01

stable

A+

13.12

15.57





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