Sellers of operating materials and supplies hit rough patch
If the folks who sell you operating materials and supplies say that manufacturers are having a tough time making a buck, you better believe it. In October 2003, five industries registered record-low levels of margins. A year ago, only one, bolts, nuts, rivets and washers, sported an F-minus margin grade.
If the folks who sell you operating materials and supplies say that manufacturers are having a tough time making a buck, you better believe it. In October 2003, five industries registered record-low levels of margins. A year ago, only one, bolts, nuts, rivets and washers, sported an F-minus margin grade. Topping that off, five industries saw their margin grades fall to F and two to D in October 2003.
The reason for these money-making woes has much to do with rising costs and general difficulties in hiking prices. The PLANT ENGINEERING operating materials and supplies price index increased a meager 0.7% in the 12-month period ending October 2003. Over the same time period and for the same market basket of products, our manufacturing cost index, up 3.2%, grew nearly five times faster than prices.
That upturn in costs explains why, despite generally weakened markets, 80% of the industries that make operating materials were able to push through at least some modest improvements in pricing. In fact, that meager 0.7% average price hike for all industries contrasts sharply with the 0.7% average price decline we saw in the 12-month period ending October 2002.
Nonetheless, some not sporting F grades have managed to transform higher tags into year-to-date margin improvements. Case in point: the plumbing valves and pipe fittings (SIC 3494) industry has increased its average product prices at nearly twice the rate of manufacturing costs, thereby generating a significant bottom-line windfall. Margins gained 71 cents for every $100 worth of product sold in the first three quarters of 2003. Even with an average C grade for margins, buyers of plumbing valves and fittings have a good opportunity to push for price cuts. Thinking Cap Solutions estimates a 0.6% to 1.4% price decline is possible without dropping margins into a danger zone.
Average Product Prices1Change, %, During 12-Mo Ending...
Direct Mfg. Costs2and Margins Grade
Growth in U.S. End Markets3Change, %, During 12-Mo Ending...
NC means data could not be computed.
Wood Pallets and Skids
Polishes and Sanitation Goods
Surface Active Agents
Adhesives and Sealants
Lubricating Oils and Greases
Rubber and Plastics Hose and Belting
Steel Wire and Related Products
Copper Rolling and Drawing
Nonferrous Wire Drawing and Insulating
Heating Equipment, except Electric
Fabricated Plate Work, Boiler Shops
Bolts, Nuts, Rivets and Washers
Fluid Power Valves and Hose Fittings
Other Valves and Pipe Fittings
Miscellaneous Fabricated Wire Products
Fabricated Pipe and Fittings
Ball and Roller Bearings
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Annual Salary Survey
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