Tooling sector outlook 'moderately good'

Overall business conditions for mold makers are moderately good at the present time, and my forecast calls for these conditions to continue through at least the end of 2017.

This outlook is based on the assumption that the growth rate for the U.S. economy will stay close to 2 percent in 2017, which is just about the same rate of growth the economy has exhibited for the past six years.

To review the relevant trends: household incomes are rising at an accelerating pace; home prices are gradually increasing; interest rates, inflation and energy prices are low; and the stock market is trading near its all-time high. All of these trends are well-established, and all of them portend further improvement in business conditions for molders and their suppliers.

I have recently heard the current state of the economy described as “treading water” or “moving sideways.” These are inaccurate.

These descriptions mean no growth, and that is not the current situation. The rate of growth in the U.S. economy is not as fast as we would like, but it is growing steadily. It is certainly not “a disaster” as one of the candidates for president calls it. This kind of inaccuracy creates uncertainty, and such uncertainty might be politically expedient. But it is most certainly one of the biggest impediments to even greater investment in capital goods like new molds.

So what does the data tell us? Take a look at the trends in corporate profits for a couple of important end markets for molded products. In these two industries the trend is steadily upward. The pace of expansion in the United States is not fast, but it is steady and reliable. Good managers can find a way to make money in these conditions, and that is what's happening in some of the biggest end markets for molds and tooling.

Automotive strong,

but steady

Last year set the all-time record for light vehicle sales in the United States, and the year-to-date total for 2016 is running slightly ahead last year. The fourth quarter was particularly strong in 2015, so I don't expect another record this year. But it will be very close. That will make two outstanding years in a row for vehicle sales, and we have the profit data to match.

For 2017, I believe that we will be past the peak in demand for motor vehicles, but the annual total will not decline by a lot. Market demand will stay at very high levels for the next year. This means that corporate profits for the motor vehicle industry will stay strong. Profit is what drives spending for capital equipment, and this most certainly includes spending for new molds and tooling. As long as automakers are making money they will continue to develop new products that require high levels of injection molded parts.

The level of output will accelerate in the medical industry in 2017. Overall, this has been a very strong market for mold makers during the past 10 years, but the pace of growth in the output of these products does exhibit some cyclicality. Fortunately for manufacturers of these products (and the mold makers who supply them), 2017 will come during a phase of the cycle that represents strong growth in production for these products.

One of the main reasons for this will be export demand. The market for medical supplies and equipment will stay strong in the United States and the rest of the developed economies, but the fastest growth will be in the emerging markets. These countries represent large, underdeveloped markets for plastic medical equipment and supplies. After a few years of stagnant growth or even recession in the emerging markets, the outlook for these countries calls for accelerating growth in 2017. I expect growth of at least 6 percent for these products in the U.S., and even faster growth in global demand.

 Slow gains in packaging

U.S. demand for plastics packaging products has expanded gradually during the past six years, and this will not change in 2017. Yet despite the slow gains in market demand, profit levels for manufacturers of food and kindred products are strong and on the rise.

U.S. consumers may not have increased their pattern of consumption as rapidly as we might have hoped, but the steady rise in consumption combined with lower materials and energy costs have resulted in strong profit levels for the suppliers of these products. Therefore they will continue to invest in the development of new products which in turn generates demand for new molds.

As for the overall economic environment, market conditions for mold makers will be firm-to-better in 2017. But during my time in the plastics industry, I have witnessed the mold making sector consolidate to the point to where it is now so small and so specialized that a gradual increase in the overall demand for new molds can result in a scenario where one segment of the industry is growing very rapidly while another segment is stagnant or declining. And mold making is extremely sensitive to the cyclical changes (either real or perceived) in demand for injection molded parts. So I am aware that a forecast of slow but steady improvement does you little good if you your experience is currently at one of the extremes.

So here is another forecast: Mold makers will continue to be challenged by foreign competition, labor force shortages, rapidly changing technologies and unsteady customer behavior. Market demand will just be sufficient to support the investment of money needed to meet these challenges if you can supply the same levels of time and energy that you have been supplying since you got into this business.