Process controls offer opportunity
The past twelve months have brought positive margin gains for 15 out of 19 industries in the PLANT ENGINEERING factory equipment and tools market basket. In fact, margin grades improved significantly for six. The air and gas compressor manufacturing was the most dramatic. Its margin grade moved from F-minus one year ago, when manufacturing margins sat at a record-low level, to a passing B grade...
The past twelve months have brought positive margin gains for 15 out of 19 industries in the PLANT ENGINEERING factory equipment and tools market basket. In fact, margin grades improved significantly for six. The air and gas compressor manufacturing was the most dramatic. Its margin grade moved from F-minus one year ago, when manufacturing margins sat at a record-low level, to a passing B grade this past September.
The best bet these days can be found in industrial process controls and equipment. Over the last 12 months, average prices for process variable instruments have increased nearly 3%. At the same time, the cost of making a typical unit of industry output has gone up only 2%, which has left a sizeable bottom-line windfall.
From a long-run point of view, the process controls and equipment industry is in good shape with margins estimated to be at a 10-year high now. Suppliers currently spend $40.92 to make $100 of market-valued output. That's $2.71 below the industry's average spending over the last five years. As a result, the typical supplier can afford to discount tags by 6.3% and still earn a five-year average return on manufacturing costs. A price cut of 3.8% moves margins to year-ago levels.
Several others pose good negotiation opportunities as well. To return margins to year ago levels, suppliers of cranes, hoists and monorails can cut tags 7.3%. Manufacturers of power and specialty transformers can discount 6.9%. Speed changers, drives and gears producers enjoy the ability to reduce prices by 4.8%. Finally, air and gas compressors can lower prices 3.6%.
Factory Equipment & Tools
Average Product Price (1) % Change During 12 Months Ending
Direct Manufacturing Costs (2) and Margins Grade
Growth in U.S. End Markets (3) % Change During 12 Months Ending
3 months ago
3 months ago
(1) Average product price changes are calculated from the producer price index for each 6-digit NAICS (North American Industry Classification System) industry from the U.S. Bureau of Labor Statistics.
Hand & edge tools (except saws)
Saw blades & handsaws
Mechanical power transmission equip.
Conveyors & conveying equipment
Cranes, hoists & monorail systems
Industrial trucks (forklifts) & stackers
Metal cutting machine tools
Cutting & machine tool accessories
Welding & soldering equipment
Pumps & pumping equipment
Air & gas compressors
Speed changers, drives & gears
Power & specialty transformers
Motors & generators
Industrial process controls & equip.
Fluid registering & counting devices
Instruments for electrical testing
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Annual Salary Survey
Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.
There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.
But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.
Read more: 2015 Salary Survey