At long last, the economy is finally gaining momentum.
The unemployment rate, which began the year at 8.3 percent, stood at 7.9 percent in October, according to the U.S. Bureau of Labor Statistics (BLS). Employment growth has averaged 157,000 jobs per month thus far in 2012, a bit more than the average monthly gain of 153,000 in 2011.
Through the first 10 months of 2012, North American light vehicle and truck production totaled 13.1 million units, an increase of 20 percent compared with the first 10 months of 2011. What’s more, industry experts predict North American production could hit 15 million units in 2013.
In September, orders for long-lasting manufactured goods posted their largest gain in nearly three years. Orders for durable goods, such as televisions and cars, increased by 9.9 percent to a seasonally adjusted $218.2 billion, according to the Commerce Department. The big gain was driven by a surge in airplane orders. Excluding transportation equipment, September orders were still up a solid 2 percent.
The Commerce Department also reported that housing starts surged 15 percent in September to the highest level in four years. Buoyed by record-low interest rates, an improving job market, and population growth, new home construction jumped to an 872,000 annual rate, the fastest pace since July 2008 and exceeding all forecasts. In addition, the National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 in October, the highest since June 2006 and the sixth-straight monthly gain.
With the economy improving, companies increased their investments in manufacturing technology this year. For example, U.S. sales of machine tools totaled $667.5 million in September, according to AMT—The Association for Manufacturing Technology. That’s an increase of 41 percent compared with August sales and 13 percent compared with sales in September 2011. Machine tool sales totaled $4.3 billion for the first nine months of 2012, up 6 percent compared with 2011.
“In the 17 years that this data has been collected, there is only one other month that broke $600 million,” says Douglas K. Woods, AMT president. “It’s possible we could average $450 million a month for all of 2012—the largest year ever for [our survey].”
All this would seem to bode well for the coming year, and the results of our 17th annual capital equipment spending survey indicate that manufacturers will boost spending on assembly technology in 2013.
Specifically, U.S. assembly plants will spend $2.86 billion on new equipment in 2013, an increase of 19 percent from the $2.4 billion projected to be spent in 2012.
Some 30 percent of respondents will spend more on assembly technology next year than they did this year, and 44 percent will spend the same as they did in 2012. Only 26 percent of respondents will spend less in 2013 than they did 2012.
Of those facilities that will boost spending from 2012 to 2013, the average expected increase is a robust $789,100. Of those facilities that will reduce spending from 2012 to 2013, the average expected decrease is $380,639.
On average, manufacturers will spend $630,360 on assembly technology in 2013. That compares with $476,123 in 2012, and it marks the first time since 2011 that the average capital equipment budget has exceeded $630,000.
Aggregate budget data indicate that spending will be no worse than it was in 2012. For example, the percentage of plants that will spend at least $1 million on assembly technology has held rock-steady at 11 percent from 2011 to 2013. Similarly, on the low end of the spending spectrum, 47 percent of plants will spend less than $50,000 in 2013. That’s virtually the same as the 45 percent that spent as much in 2012 or the 49 percent in 2011.
It’s in the midrange where real growth can be seen. In 2013, 21 percent of assemblers will spend between $100,000 and $250,000 on capital equipment. That compares with 18 percent in 2012 and 15 percent in 2011.
There’s certainly money available to spend. According to financial services firm JPMorgan, corporate cash balances have swelled by 14 percent and are on track toward $1.5 trillion for the Standard & Poor’s 500. Both figures would be historic highs. And, with the election over, manufacturers appear ready to put that money to work, now that some uncertainty has been taken out of the economic equation.
It’s a good thing, too, because assemblers spent most of what they wanted to this year. Indeed, 55 percent of respondents spent at least 70 percent of their proposed capital budgets for the year. That’s the highest percentage since 2008 and a dramatic reversal from the past few years, when less than half of our respondents spent 70 percent or more of their budgets.
On average, assemblers spent 63 percent of their 2012 budgets. That’s the same decent percentage as last year, but it’s still less than the average of 67 percent in 2008 or 79 percent in 2002.
Manufacturers will need new assembly technology, too, because they’re not adding much help. The average number of employees at responding plants this year is 200. That’s better than last year’s average of 161, but it’s well below historic averages for our survey. In fact, 70 percent of respondents to this year’s survey employ less than 100 workers. That’s an all-time high for our survey.
Regardless of how much they spend on capital equipment next year, assemblers continue to expect a quick return on investment (ROI). Next year, only 33 percent of plants have an ROI period of at least two years. It’s the third straight year in which that percentage has been below 35 percent.
Replacing old equipment continues to be a priority for ASSEMBLY’s readers. Some 42 percent of U.S. assembly plants will be replacing worn-out machinery next year. It’s the second straight year that ratio has been over 40 percent.