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...
By Staff March 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