Demand for new molds and tooling is sensitive to a wide array of trends in the U.S. economy. These include changes in personal spending, tax rates, interest rates and exchange rates. But most importantly, growth in orders for new molds is highly susceptible to major trends in the data on U.S. manufacturing. History teaches us that when the U.S. manufacturing sector contracts by even a modest amount, demand for new molds and tooling can drop dramatically.
A manufacturing sector that is consistently generating good news is crucial to the outlook for mold makers. Therefore, I am gratified to report that the manufacturing sector ended the third quarter with some positive momentum, and the outlook for the coming months continues to improve.
The ISM Manufacturing Index for September came in at 60.8 (a value over 50 indicates expansion). This was a salubrious gain of 2 points when compared with the 58.8 reading for August, and it is the highest overall reading since 2004. As you would expect when the headline number surges past the 60 level, the underlying details are also quite encouraging. The new orders component jumped to 64.6. The employment measure escalated to 60.3 — the best reading since 2011. And the subindex for prices paid registered a robust 71.5 — also the highest since 2011.
To be fair, it must be noted that some of the increase in this index was likely due to the effects of two major hurricanes. Harvey shut down many refineries and chemical plants, and this probably accounted for a portion of the jump in prices paid. Both Harvey and Irma destroyed a lot of capital equipment and merchandise, including cars, so this also had a positive effect on the monthly figures.
But if you look closely at the data, you will see that the manufacturing sector was starting to gather steam before the storms hit. This is primarily due to three trends that started earlier this year: improving global demand, increasing capital spending in the United State; and a weakening U.S. dollar.
These trends have also provided solid support to demand for U.S. mold and tooling. This is not to say that the mold making industry is going gangbusters at the present time or that it is in danger of blasting off into the stratosphere in the next year or two. But after analyzing the data from the third quarter, I believe overall business conditions for mold makers in the coming year will be mostly steady. As always, some shops will be busier than others and it will remain necessary to monitor closely any changes in the direction of indicators such as the ISM Manufacturing Index.