Molders Economic Index: Asian troubles: Less effect than expected for molders

A review of data for the last quarter of 1997 as well as the initial data available for the first six weeks of 1998 indicates that, overall, injection molding firms will see less of an impact from the Asian troubles than widely anticipated.

The reasons are simple: while exports to Asia are down sharply, domestic demand is picking up along with booming exports to South America and even to Europe. What this means, says one injection molder of medical parts with several plants across the United States, is "that at worst we will see a little bit less growth in 1998 than in 1997."

A review of actual export data for the last quarter of 1997 shows significant shifts. Exports to Asia of products consisting predominantly of injection molded components - such as medical devices, keyboards, computers, cell phones, and small and large appliances - fell significantly while exports showed increases in the 10 percent range to such countries as Brazil, Chile, Venezuela, France, and Germany.

While it is somewhat complicated to extract meaningful data directly pertaining to injection molding from the statistics released by the Commerce Dept., it appears that such injection molding exports did far better in the last quarter of 1997 than overall exports. This attests to the strength of the injection molding marketplace, as evidenced also by comments to IMM from injection molders.

The last quarter of 1997 turned out stronger than previously anticipated, according to data from the Commerce Dept. From October 1997 to December 1997, the GNP expanded at a 4.3 percent annual rate, up from 3.1 percent in the third quarter of 1997. This, say economists, sets the stage for a strong 1998. And injection molders interviewed for this report say that January orders have been very healthy with backlogs increasing.

Durable Goods: Up

December 1997 durable goods orders - this indicator projects economic activity by injection molders in such key markets as electronics, medical, transportation, and large appliances - dropped 2.5 percent. But excluding the 63 percent drop in aircraft orders, the balance of the economy saw actual orders rise 1.6 percent. Overall for 1997, factories making durables recorded a 5.3 percent increase in orders, up from a 4.6 percent increase in 1996, the Commerce Dept. says.

Note that a closely watched gauge of manufacturing activity unexpectedly cooled in January 1998 as export orders slumped for the first time in two years. The National Assn. of Purchasing Management's index declined to 52.4 in January from 53.1 in December. A reading above 50 still represents growth. Also, the group's new-orders index increased in January, while the level of inventories remained little changed from December. Commerce Dept. figures showed that growth in personal income and in consumer spending both slowed in December, winding up a strong year on a subdued note.

Indicative of the surprising strength of such injection molding market segments as housewares, durable goods, small and large appliances, toys, and consumer electronics was Commerce data that show that disposable income for all of last year rose 5.8 percent, topping the 5.6 percent increase of 1996. Spending in 1997 rose 5.4 percent, the strongest showing since 1994, after increasing 5 percent a year earlier.

Electronics Strong

Shrugging off worries about Asia, the electronics market is showing continued signs of healthy growth. The key change here is that supply has come back into balance with demand, and manufacturers have effectively absorbed an average 70 percent price drop during the past two years for printers, computers, fax machines, and copiers.

In January, for the first time in 12 months, the street price of memory chips, called DRAMs, has risen to the $3 to $3.50/mb range, after falling all the way to the $2 level at the beginning of 1998. Sources at the Semiconductor Industry Assn., a trade group of American chip makers, predict that in 1998 demand for memory chips is expected to continue to increase at the 70 percent per year growth rate it has tracked for the past decade.

Sales Down

While January car and light truck sales were down industry wide by about 6.1 percent - that's from all sources, domestic and imports - injection molders in the competitive

automotive market say that they anticipate no significant downturn. This was confirmed in part by early data in February indicating that a rise in sales would push annualized car and light truck production to the 15.2 million unit mark.