Winds of inflation blowing strong
Smell the whiff of inflation? In the 12-month period ending September 2004, the average cost to make factory equipment and tools jumped 5.6%. That's a sharp detour from the no-to-low inflation trend that had characterized the past 10 yr. By comparison, costs to make equipment and tools increased just 1.
Smell the whiff of inflation? In the 12-month period ending September 2004, the average cost to make factory equipment and tools jumped 5.6%. That's a sharp detour from the no-to-low inflation trend that had characterized the past 10 yr. By comparison, costs to make equipment and tools increased just 1.6% in September 2003 after falling 0.5% in 2002.
For plant engineers on a budget, running from the stink of higher prices won't be an option. With F-minus margin grades for 10 industries in our equipment and tools market basket, sellers are under extreme pressure to hike prices.
Consider, for example, the top industry: hand and edge tools. Over the last 12 months, industry margins fell to a record low by losing $5.86 per $100 of product sold. This loss was the net result of a 12.5% surge in per-unit manufacturing costs and a meager 2.3% hike in output prices.
The cause of all the problems? Steel. Per-unit spending for steel shapes jumped 47.6% since August 2003. Second-tier concerns include ferrous foundry shapes and energy costs.
Margins most likely will exert significant upward pressure on prices in the near term.
Virtually the entire margin motivation for higher prices has developed over the last 12 months. Thinking Cap Solutions' analysis indicates tags must rise 11.4% in order to generate a fair return on manufacturing-related spending.
In 2005:Q1, suppliers will finally vent by boosting tags at least 1.7%. It's not likely that handtool makers will see anything close to an 11% price hike. But positive demand trends and sector-level capacity utilization data suggest competitive market conditions will prevail.
Construction & Maintenance Supplies
Average Product Prices % Change During 12 Months Ending
Direct Manufacturing Costs and Margins Grade
Growth in U.S. End Markets % Change During 12 Months Ending
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.
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
- Events & Awards
- Magazine Archives
- Oil & Gas Engineering
- Salary Survey
- Digital Reports
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