Generally speaking, manufacturers are nervous about the upcoming year, not-withstanding the positive comments on the election early last month by Jay Timmons, senior v.p. for Policy and Government Relations with the National Association of Manufacturer: Tuesday's election upheaval should be seen not as a radical shift to the political left, but rather an expression of widespread frustration. I believe Rep. Nancy Pelosi will assume the House Speaker's gavel with a determination to deliver results for the American people, to enable her party to govern beyond two years. To do that, I anticipate she and her leadership team will bring nontraditional allies together to forge consensus on key issues, and that will include the business community. Hopeful words, but many more commentators, speaking off the record, doubt that Rep. Pelosi and the Democrats will set out with a pro-manufacturing legislative agenda.
One detail likely to change is the federal minimum wage, which has stood at $5.15/ hr since September 1997. Beyond having Democratic backing at the federal level, voters in six states (all of which President Bush carried in his 2004 reelection drive) approved initiatives to increase minimum wage. This means that 29 states and the District of Columbia will have minimum wages higher than the federal standard, making it more difficult to argue against increasing the federal minimum wage.
Experts are undecided as to how much an increase in the federal minimum wage will affect the overall economy, but it seems likely to hurt smaller, family-owned foundries that may see labor costs rise. According to Timmons, From a business standpoint, I would hope to see some offsetting tax credits, or a package of incentives, to compensate for the additional cost.
By the numbers
Numbers don't lie, but they disagree frequently. On the one hand, foundrymen surely must be disheartened to know that the Institute for Supply Management's November factory index fell to 49.5, from 51.2 in October. Many economists had been expecting it to reach 51.5 knowing that anything less than 50.0 indicates the manufacturing sector (the source for 12% of U.S. gross domestic product) is contracting.
On the other hand, overall employment increased in October, and the national unemployment rate declined to 4.4%. Good news for manufacturing? Not necessarily. Many economists attribute the low unemployment rate to gains in the service industries, rather than expanding manufacturing producing levels. So what do our readers make of all this?
Despite the good new/bad news muddle, most of the metalcasters in our annual survey of decision-makers expect the national economy at least to stay the same (43%), or even improve somewhat (30%). Specific details uncovered in our survey back up this cautious optimism.
In addition, survey results gaging business conditions for 2006 were pretty decent. Virtually all segments of the metalcasting market reported an increase in shipments over 2005. Steel foundries saw the greatest degree of increase, with a net change of 7.8%. Aluminum cast-ers came in second place with a 6.6% increase, followed by gray iron (3.9%) and brass/bronze operations with 1.1%. Only ductile-iron foundries saw a negative net change in shipments down 2.8%%.
In terms of size, foundries demonstrated in 2006 that good things come in small packages. Foundries employing 20-49 people increased their shipments by 6.7%, while both foundries with less than 20 employees and those employing 50-99 posted a positive 4.5% increase in shipments. The larger foundries had a decent year, too: the largest operations (employing over 250) indicate a 3.1% increase in shipments; and those employing 100-249 saw a jump of 3%.
Smaller metalcasting operations are a bit more optimistic about the coming year, as well. Foundries with fewer than 20 employees expect to increase shipments by 4.5% and those employing 20-49 expect a 3.4% change. However, regardless of their size, metalcasters expect shipment levels to rise.
Breaking it down by metal type reveals that steel foundries expect another good year ahead, anticipating an increase in shipments of 6%. Ductile-iron foundries are the least optimistic: operators there expect a 4.5% drop in shipments.
Not surprisingly, steel casters plan to spend the most in 2007, anticipating they will increase spending by 5.3% over 2006. Interestingly, ductile-iron foundries intend to spend more than some of their counterparts, specifically gray iron and brass/ bronze foundries. In fact, other than steel the only metalcasting segment expecting to spend more than the ductile-iron foundries are aluminum metalcasters, who plan to increase capital expenditures by 4.9%.
Although the little guys posted some big numbers, it is mainly the larger foundries that plan to spend the most. Those operations employing more than 250 plan a 10.3% increase in capital expenditures, and foundries employing 100-249 expect to increase expenditures by 8.3%. All segments plan to increase capital spending, even the smallest: Those employing less than 20 people look to increase expenditures 0.3% in the coming year.
Close to three-quarters of our respondents (69%) plan on purchasing new equipment in 2007, so what will they be spending their money on? Topping their shopping lists is melting equipment, which 23% of respondents plan to buy. Grinding equipment came in second at 19%, and pollution-control equipment, lab equipment, machine tools, and lift trucks and loaders all tie for the number three spot.
Looking to what worries our readers, we find higher raw material costs were the leading concern during 2006, and these respondents expect it to continue to be the leading headache in 2007. Also heading the list of concerns are medical-insurance and workers-compensation costs, labor issues (both the shortage of capable workers and high labor costs), and the increasing impact of imported castings.
More than half of those metalcasters responding to the survey indicated that casting imports are affecting their businesses in an increasingly adverse way.
These are the opinions of our readers, and it's difficult to predict how they will be borne out to impact the metalcasting industry. But, it is encouraging that our readers are hopeful. As one reader cautiously put it, I think the size of the pie continues to decrease. I think the larger foundries will be a little better off than the smaller ones.
But, he continued, I think the industry will continue to consolidate, maybe more slowly, but still consolidate. There is just no way to tell about the future. I will just keep my fingers crossed.
| 2006 Shipments Compared to 2005 | ||||
| Major Metal | About Same | Increase | Decrease | Net % Change |
| Gray Iron | 48% | 38% | 14% | +3.9% |
| Aluminum | 44% | 49% | 7% | +6.6% |
| Ductile Iron | 42% | 29% | 29% | -2.8% |
| Brass/Bronze | 52% | 33% | 15% | +1.1% |
| Steel | 43% | 51% | 6% | +7.8% |
| Employment Size | ||||
| Under 20 | 54% | 36% | 10% | +4.5% |
| 20-49 | 37% | 56% | 7% | +6.8% |
| 50-99 | 46% | 42% | 12% | +4.5% |
| 100-249 | 39% | 44% | 17% | +3.0% |
| Over 250 | 41% | 41% | 18% | +3.1% |
| Total Industry | 46% | 43% | 11% | +4.7% |
| Capital Expenditures Planned for 2007 | |
| New Plant | 1% |
| Additional Plant | 2% |
| New Equipment | 69% |
| Major Problems | ||
| 2006 | 2007 | |
| Capital Availability | 24% | 20% |
| Energy Shortages | 6% | 6% |
| EPA | 22% | 26% |
| General Labor Shortage | 41% | 39% |
| High Labor Cost | 32% | 35% |
| Trained Labor | 40% | 44% |
| Higher Raw Material Cost | 86% | 78% |
| Imported Castings | 32% | 31% |
| Interest Rates | 6% | 6% |
| Lack of Orders | 17% | 22% |
| Material Shortages | 9% | 7% |
| Medical Insurance Cost | 66% | 64% |
| OnTime Delivery | 22% | 16% |
| OSHA | 26% | 26% |
| Product Liability | 9% | 9% |
| Quality of Castings | 9% | 7% |
| Workers Comp.Cost | 49% | 46% |
| Expected 2007 Shipments Compared to 2006 | ||||
| Major Metal | About Same | Increase | Decrease | Net % Change |
| Gray Iron | 48% | 38% | 14% | +1.7% |
| Aluminum | 48% | 43% | 9% | +4.8% |
| Ductile Iron | 54% | 15% | 31% | -4.5% |
| Brass/Bronze | 59% | 29% | 12% | +3.1% |
| Steel | 49% | 45% | 6% | +6.0% |
| Employment Size | ||||
| Under 20 | 62% | 31% | 7% | +4.5.3% |
| 20-49 | 42% | 49% | 9% | +3.4% |
| 50-99 | 54% | 33% | 13% | +2.2% |
| 100-249 | 39% | 39% | 22% | +2.6% |
| Over 250 | 41% | 41% | 18% | +2.5% |
| Total Industry | 51% | 38% | 11% | +3.5% |
| 2007 Capital Expenditures Compared to 2006 | ||||
| Major Metal | About Same | Increase | Decrease | Net % Change |
| Gray Iron | 53% | 20% | 27% | +1.0% |
| Aluminum | 56% | 35% | 9% | +4.9% |
| Ductile Iron | 34% | 33% | 33% | +2.9% |
| Brass/Bronze | 57% | 26% | 17% | +1.8% |
| Steel | 51% | 43% | 6% | +5.3% |
| Employment Size | ||||
| Under 20 | 60% | 23% | 17% | +0.3% |
| 20-49 | 50% | 34% | 16% | +2.8% |
| 50-99 | 54% | 42% | 4% | +4.2% |
| 100-249 | 61% | 30% | 9% | +8.3% |
| Over 250 | 24% | 53% | 23% | +10.3% |
| Total Industry | 53% | 32% | 15% | +3.4% |
| 2007 Equipment Purchases | ||
| Planning To Buy | No.of plants | %of plants |
| Melting Equipment | 491 | 23% |
| Grinding Equipment | 420 | 19% |
| Machine Tools | 315 | 14% |
| Lift Truck &Loaders | 313 | 14% |
| Pollution Control Equipment | 300 | 14% |
| Lab Equipment | 295 | 14% |
| Conveyors | 277 | 13% |
| Robots & Manipulators | 268 | 12% |
| Cranes & Hoists | 253 | 12% |
| Blast Cleaning Equipment | 235 | 11% |
| Air Compressors | 230 | 11% |
| Shake Out/Punch Out | 205 | 9% |
| Sand Preparation Equipment | 200 | 9% |
| Heat Treating Equipment | 200 | 9% |
| Core Machines | 194 | 9% |
| Testing & Inspection | 187 | 9% |
| Molding Machines | 174 | 8% |
| Cutoff Equipment | 169 | 8% |
| Sand Reclaimation Equipment | 151 | 7% |
| Design Software/Hardware | 139 | 6% |
| Continuous Mixers | 138 | 6% |
| Process Computers | 109 | 5% |
| Automatic Pouring | 95 | 4% |
| Rapid Prototyping | 65 | 3% |
| Investment Casting Equipment | 59 | 3% |
| Die Casting Machines | 33 | 2% |
| Permanent Mold Equipment | 15 | 1% |
| Lost Foam Equipment | 11 | 1% |
| How are casting imports affecting your business | |
| No Effect | 36% |
| Becoming More of a Factor | 52% |
| Becoming Less of a Factor | 12% |
| Feeling About Overall US Economy in 2007 | |
| Greatly Improve | 1% |
| Improve Somewhat | 30% |
| Stay About the Same | 43% |
| Decline Somewhat | 25% |
| Decline Dramatically | 1% |
| 2006 Capacity Utilization | |||
| No.of Employees | Material Used | ||
| Under 20 | 75.3% | Gray Iron | 81.6% |
| 20-49 | 82.2% | Aluminum | 78.2% |
| 50-99 | 82.8% | Ductile Iron | 83.8% |
| 100-249 | 81.7% | Brass/Bronze | 76.1% |
| Over 250 | 80.9% | Steel | 81.2% |
| Total Industry | 79.7% | ||