Motors industry to raise prices
After rising sharply in November, prices for motors and generators (SIC 3621) retreated 0.14% in December 2002. Prices for fractional horsepower engines, down 0.8%, led the deflationary charge. On the cost front, per-unit spending on manufacturing rose 0.3% thanks to a 1.4% jump in wages paid to factory floor workers.
Thinking Cap Solutions estimates industry prices in the motors industry must rise an average of 1.5% in order to generate a fair return on manufacturing-related spending. To get a return equal to the one earned a year ago requires a much smaller increase of 0.2%. This means cost/margin-based negotiation strategies favor suppliers. Luckily, demand trends favor buyers. Year-over-year end market growth for SIC 3621 remains mired in negative territory. Buyers can use weak demand conditions as leverage at the negotiation table.
Meanwhile, plant engineers who are buying speed changers, drives, and gears (SIC 3566) face a different environment. After three months of increases, prices for speed changers, drives and gears took a breather, remaining flat in December. On the cost front, per-unit spending on manufacturing edged ahead 0.07% thanks to a 0.35% jump in wages paid to production workers.
Our economic analysis indicates SIC 3566 can afford to lower tags by an average of 1.2% and still earn a fair return on manufacturing-related spending. The road will not be smooth as producers of speed changers and gears struggle with inflation concerns. A roundup of 12-month cost increases shows: U.S.-made raw materials, up 2.2%; imported materials, up 1.7%; production worker wages, up 4.7%; fuels, up 22.5%; and inbound freight, up 3.5%. Note that fuel costs are a negotiation red herring because fuel represents a relatively minor budget item.
|Industry||SIC||Average Product Prices||Average Product Prices||Direct Mfg. Costs||Direct Mfg. Costs||Growth in U.S. End Markets||Growth in U.S. End Markets|
|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.|
|Other Hand and Edge Tools||3423||2.21||0.96||stable||C||-0.38||0.33|
|Hand Saws and Saw Blades||3425||0.27||1.03||stable||D||-2.03||-0.38|
|Other Power Transmission Equipment||3568||1.78||1.78||stable||C||-5.97||-2.67|
|Conveyors and Conveying Equipment||3535||0.83||0.32||stable||C||-4.04||-3.62|
|Hoists, Cranes and Monorails||3536||0.71||0.59||stable||B||-4.52||-4.85|
|Industrial Trucks and Tractors||3537||-0.02||-0.07||stable||F||-1.52||-0.63|
|Metal-Cutting Machine Tools||3541||-4.84||-4.11||stable||D||-7.21||-4.43|
|Machine Tool Accessories||3545||0.90||0.41||stable||D||-2.51||0.68|
|Power Driven Hand Tools||3546||0.64||0.24||stable||F-||-1.43||-0.77|
|Pumps and Pumping Equipment||3561||2.66||2.15||stable||B||-4.05||-2.33|
|Air and Gas Compressors||3563||2.17||1.98||stable||A||-4.05||-2.33|
|Speed Changers, Drives and Gears||3566||1.25||1.09||stable||B||-5.97||-2.67|
|Motors and Generators||3621||-0.11||0.07||stable||F||-5.36||-2.65|
|Process Control Instruments||3823||1.37||1.19||stable||A||-2.33||-0.95|
|Fluid Meters and Counting Devices||3824||0.35||0.88||stable||A||-2.33||-0.95|
|Instruments to Measure Electricity||3825||0.81||0.73||stable||B||0.21||3.43|