Business Activity Levels Drop Again

When the poet T.S. Eliot wrote that “April is the cruelest month,” he was not referring to the mold industry. Or was he? Business activity levels for North American moldmakers dropped again in April. The latest value for our MBI was 39.2. This
is a 4.8 percentage point decrease from the March value of 44.0. April was the
weakest month for the MBI in 2006, and this month’s value is easily the lowest
level so far in 2007. All of the components that comprise the MBI indicated decreases in activity in April when compared with the previous month. The one bright spot is that Future Expectations elevated to 59.3 in April.

The growth rate for the overall U.S. economy decelerated to a tepid 1.3 percent in the first quarter of 2007, due in large part to the current cyclical downturn in the manufacturing and residential construction sectors. Compounding this problem, energy prices have increased in recent weeks.

However, the seeds of the next recovery phase for manufacturers are already sown. Inventory levels for most manufacturing segments continue to decline, exports are increasing, and employment figures remain strong. It will take a few months for all of the macro-economic indicators to return to an “accelerating growth” phase of the business cycle, but we continue to forecast a noticeable improvement in business conditions during the second half of this year.

Despite the sluggish market demand in recent months, moldmakers are still feeling the pain of a “double squeeze.” The first squeeze comes from prices paid vs. prices received. The Mold Prices sub-index for the latest month was 33.3. This means that the prices received for new molds declined again last month, and several respondents mentioned that overcapacity and the resultant downward pricing pressure were the biggest problems currently affecting the North American mold industry. But their prices paid for materials increased again, as the latest sub-index for Materials Prices was 68.5.

The second squeeze comes from time pressures. Supplier Delivery Times were steady-to-longer, as this sub-index posted a value of 46.3 in April. But many mold shops are reporting that the time they have for getting finished projects to the customer is being compressed.

The sub-index for New Orders of molds was 37.0 in April, which means that the number of new projects decreased at a faster rate when compared with the previous month. Production levels were also lower, as the latest Production sub-index was also 37.0. The Employment component was 42.6, which indicates that overall payrolls declined in recent weeks. The industry’s overall backlog shrank, as the Backlog sub-index registered 25.9 in April.

April 2007
	% Positive	% Equal	% Negative	Net % Difference	Sub- Index
New Orders	26	22	52	-26	37.0
Production	22	30	48	-26	37.0
Employment	4	77	19	-15	42.6
Backlog	11	30	59	-48	25.9
Export Orders	0	93	7	-7	46.3
Supplier Deliveries	7	78	15	-8	46.3
Materials Prices	37	63	0	37	68.5
Mold Prices	7	52	41	-34	33.3
Future Expectations	48	22	30	18	59.3
Total Mold Business Index for April 2007: 39.2. The total Mold Business Index is a weighted average of the sub-indices for new orders, production, employees, backlog, exports and supplier deliveries.