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Die Casting News

The State of the Die Casting Industry, Part 2 of 3

Posted by Hill and Griffith Company on Aug 17, 2018 9:38:14 AM

North American Die Casting Association's President Steve Udvardy, reviews the Trump Administration, Macro Economics and Die Casting Markets in this three part series.

Good day everyone, and welcome to the latest update of the North American Die Casting Industry State of the Industry. I'm Steve Udvardy, and pleased to have the opportunity to speak to you today.

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Macro Economics

Okay, now let's turn to macro economics and our GDP growth. This chart shows GDP growth by quarter from 2014 through the end of the first quarter of 2018. 2018 initially came in at about 2%. GDP growth was then revised at 2.2%. The projection for the second quarter, although the numbers are not in yet, is 2.5%. Is that good? Is that bad? Well, one, it's positive. It's a positive number, but if we go back to the most recent recession period, when were coming out of 2009, our GDP growth was hanging around 2-3%. That's what had taken us a substantial amount of time to dig ourselves out of the hole that was dug during the most recession period. All of the prior recession periods had recovery rates of GDP growth between 5-6%. Although 2-3 is not bad, it has not been the 5-6% that we had post prior recession periods. Where do we see all of 2018? Wells Fargo, for instance, that manages our investment portfolio, projects about 2.8% for the year. That's as compared to 2.6% for all of 2015, 2.1% 2016, 2.5% 2017, but depending on what source you look at, for all of 2018, the expected GDP growth is going to be somewhere between 2.6-2.9%.

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Unemployment, extremely low. Last month, it was at 3.8, 3.9, and crept up a little bit. This is not necessarily an 18 year low, but it is very low, and the top chart that you see shows the decline in unemployment post recession period to present. Incidentally, these gray vertical bars are recession periods. From the early 1980s to present, what we saw coming out of the most recession period was around 16 million individuals unemployed. Today, at that 4%, that equates to about 6.6 million individuals being unemployed, so a great drop. Since January of 2017 or since the new administration, there have been more than 2.5 million jobs added to the economy and thus far in 2018, the numbers show average job growth the strongest since 1997.

Another statistic that we look at or an index here is of the unemployed, what percentage have been employed for about a half a year or more, 27 weeks plus. That has also declined from the most recent recession period to present. Where we were in the mid 2016 was about 2.2 million individuals of the unemployed that were out of work for at least half a year, and today it's 1.4 million, so that has declined as well.

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Consumer sentiment is an index that's kind of that good feeling that people have that allows them to make decisions to buy things and are not reluctant to spend money. When the economy's not doing well or you have fear of losing your job, not knowing whether you're going to be employed tomorrow, people tend to hold back and don't spend as much, but consumer sentiment has increased from the most recent recession period to present. It remains fairly high. You see the historic trend here, consumer sentiment from the 1980s to present.

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Personal consumption ties to consumer sentiment. That helps to spark the economy. Certainly, personal consumption, personal spending contributes to our GDP growth and this has also increased since the recession period, but the index, you can see this little tail here, is starting to level out a bit. If we looked at this not in terms of just an index, but a percent change quarter over quarter or a percent change on an annual basis, the percent change is still positive, but has decreased over the course of the past few years. Just some quick numbers here, the consumption index going into the election was 428, and for the first quarter of 2018, it was 440. We're moving from this point up to this point in personal consumption.

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Manufacturing capacity use. Now, this is not just die casting. This is all of the manufacturing sectors combined, an average capacity use or utilization of 75.7%. That had increased fairly quickly from the post-recession period and has been holding fairly steady for the past few years now. Is 75.7% a good number? It's not a bad number, but what we like to see and what most experts say is a healthy manufacturing capacity is 80 or 82% or higher, so we'd like to see it above that. Now, keep that 75.7% number in mind because when we get towards the end of the presentation, we'll see specifically what it is for die casting. Okay, I mentioned 80, 82% or above. Is that possible? Have we ever hit that? Well, if we look at this expanded timeline here, here is the 80% mark, and you can see in the '80s, the '90s, early 2000s, we were in fact above that 80% mark.

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Some more information from NAM. They have an index, as well, and all of the questions that they asked, they turned into an index. Look at the change from again, election time. We see an index less than 45 for medium sized and large firms, lower than 35 for small firms, and when we get into 2017, not only have we gone above 60 within a CEO outlook index, but the small firms have converged with the medium sized and large firms and that is holding fairly steady since the beginning of 2017 through the end of the second quarter of this year.

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Expected growth in manufacturing. You can see trends here as well from third quarter of 2016 through the second quarter of this year. Sales are up. Capital investment is in fact up, so the companies that said they would invest more, especially in light of rolling back some of the regulatory costs, seems to be coming to fruition. Full-time employment, you can see that increasing, as well.

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If we look at the composite summary from this most recent quarterly report from NAM, we see that sales are up, full-time employment up, capital investment up, prices of products, company products up, inventories up slightly, production up, employee wages up, exports up. Everything is up. I guess maybe not a positive from an increase perspective is an increased in raw material prices and an increase in healthcare costs, but it does in fact appear that manufacturing has turned the corner.

(Next week we'll publish his comments on the Die Casting Market)

(Download a PDF of the slides here. View the video here.)

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