Overall Business Levels Improve

Overall business levels for North American moldmakers improved with an MBI of 56.3—a 6.3-point increase from July’s 50.0, but a modest 2.1-point decrease from last August. There were increases in most of the components, but Supplier Delivery Times are longer and Materials Prices are higher. Future Expectations rebounded a bit.

This rise in our MBI is particularly gratifying because there is a growing concern that the U.S. economy is on the cusp of another recession. Many business sectors have stopped hiring and households are spending more cautiously. Banks are deciding whether it makes sense to continue easing credit standards, or if they should instead batten down the hatches. Declining stock prices and widening credit spreads suggest investors are also losing faith. The primary reason that recession risks are uncomfortably high is because consumer and business confidence is unusually low. It is true that the economy continues to struggle with fundamental problems such as the ongoing foreclosure crisis, sluggish demand for both residential and commercial real estate, and mind-boggling government deficits. But even more serious is that investors, consumers and businesses remain shell-shocked by recent events.

Consumer sentiment always falls when unemployment, gasoline prices, or inflation rises, but this typically has only a minor impact on actual consumer spending. There are times however, when sentiment is so gloomy that businesses, consumers and investors freeze up. In these times, a gloomy outlook can become a self-fulfilling prophecy. This may one of those times. It is still too early to tell, but this drama will dominate the economy for a few more weeks and months.

As far as the recent data, New Orders increased smartly at 63.2—a gain that followed a flat reading in July. Production registered a strong 60.5. Employment is 52.6, indicating moderated, but positive hiring activity. Overall backlogs enjoyed a small, but positive expansion, 52.6. Mold Prices is at 52.6, which corresponds with the steady-to-higher trend that has prevailed for most of this year. The prices paid for materials and components continue to rise with Materials Prices at 65.8. Supplier Delivery Times lengthened yet again, 31.6. There was a small increase in offshore orders for new molds, as Export Orders is 52.6.

Again by a wide margin, the most-cited problem in recent weeks is the shortage of skilled labor.  Our Injection Molding Business Index is moderately stronger in the third quarter of 2011 when compared with the previous year. This Index grew by 7 percent in 2010, and the forecast calls for a gain of 4 percent in 2011.