Metalworking equipment - 1991 U.S. Industrial Outlook

Alexis Kemper

Metalworking Equipment

While the nominal value of metalworking equipment shipments increased in 1990, after adjusting for inflation, shipments declined more than 1 percent. Exports were up 21 percent, while imports fell 7 percent. As a result, the trade imbalance in metalworking machinery declined by nearly $1 billion. Shipments in 1991 are estimated to climb 3 to 4 percent in real terms.

Numerous domestic issues cut across the industries that make up the metalworking sector, including an impending shortage of skilled labor, the likelihood of a recession, and higher energy prices. Each will affect the metalworking industries differently, however. For example, the machine tool and power hand tool industry will benefit from a skilled labor shortage as manufacturers move further toward automation and home-owners tackle more do-it-yourself projects to offset higher remodeling costs. On the other hand, the skilled labor shortage is certain to have an adverse effect on contract shops, where labor supplies are critical and competition for labor is intense.

The industry's success depends on the ability of U.S. firms to adapt to global operations without diminishing service to their local customers. This is becoming a critical issue, as the U.S. has fallen from its position as the dominant metalworking market in the 1960s to third or fourth largest.

Before reading this chapter, please see "How to Get the Most Out of This Book" on page 1. It will clarify questions you may have concerning data collection procedures, factors affecting trade data, forecasting methodology, the use of constant dollars, the difference between industry and product data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to this chapter, see chapters 18 (Advanced Materials), 20 (Industrial Machinery), 22 (Aerospace), and 37 (Motor Vehicles and Parts).

INTERNATIONAL COMPETITIVENESS

The approaching economic integration of 12 Western European nations, or EC92, presents increased opportunities and greater competition for U.S. metalworking equipment manufacturers. Many, if not most, U.S. manufacturers have some type of marketing or production agreement with a European concern. EC92 will allow European joint ventures to operate more freely across most of Europe. In addition, most European experts on the metalworking industry believe EC92 will result in a consolidation not only of markets but of the industry itself. As the market players become more familiar to competitors and customers, smaller national-oriented firms will find it more difficult to remain viable. Mergers, acquisitions, and failures will concentrate production capabilities in Europe among a smaller number of producers, creating stiffer competition for U.S. firms in Europe, third country markets, and in the United States itself. Already, companies such as Maho, ABB, and Trumpf, to name a few, have invested heavily in American production and research facilities. Such investments are expected to continue as European firms expand to remain competitive.

Japan, which is one of the largest consumers of metalworking equipment, imports only a small portion of its total demand. Growth in Japan's economy is expected to maintain its 4-percent pace into 1991 and possibly 1992. Metalworking machinery producers there are already working near capacity; and yet the backlog of orders continues to rise. Although it may be unrelated, last year U.S. metalworking imports from Japan were down more than 30 percent from 1989 levels. Japanese analysts project new machine tool orders to increase marginally in 1991. However, shipments are not projected to increase by the same rate, hence backlogs will continue to grow in 1991. Concurrently, the relative price of U.S. machines has fallen by nearly 10 percent against Japanese machines because of the lower value of the dollar. While business is booming in Japan, Japanese firms have invested heavily in the U.S. during the past three years. Investments have varied and cut across all metalworking equipment industries.

Competition will continue to increase in the next five years as the pace of expansion slows in industrialized economies and some slip into mild recessions. The metalworking firms in Europe and Japan, like their U.S. counterparts, will be looking at newly developed and developing markets for orders to offset declining sales at home. Topping the list of markets is South Korea. From almost total obscurity in 1984, South Korea has become one of the six largest export markets for U.S. metalworking equipment. In some sectors, South Korea has risen to become the second (welding) or third largest (machine tools) export market for U.S. firms. South Korea's gross domestic product is projected to grow by 5 to 7 percent during the next several years, far above the rate of the industrialized nations. Developing markets for U.S. metalworking equipment include Eastern Europe, the Soviet Union, Thailand, and Brazil. Exports of metalworking equipment to the Soviet Union rose sharply in 1990, a trend that is expected to continue into 1991. Brazil has been a fair market for U.S. equipment in the past, but the country's recent economic reforms expanded the market potential dramatically in 1990.

Still, the top four U.S. metalworking export markets (Canada, Mexico, Germany, and the United Kingdom) accounted for 50 percent of total metalworking exports, up from 41 percent in 1989. Canada imported $1,080 million of U.S. metalworking equipment, or 26 percent of the total exports. Mexico purchased $311 million of U.S. metalworking exports, about 8 percent of the total. Exports were up 16 percent in 1990 and are expected to be up 10 percent in 1991. Imports were down 8 percent in 1990 but are expected to increase 4 percent in 1991.

MACHINE TOOLS

Following a 6 percent real increase during 1990, the constant-dollar value of machine tool product shipments will grow an additional 5 percent in 1991. Structural changes in end-user markets will ensure growth of 3 percent a year during the next five years.

The machine tool industry is composed of two four-digit Standard Industrial Classification (SIC) code industries: the metal cutting machine tool industry (SIC 3541) and the metal forming machine tool industry (SIC 3542). The 1987 Census of Manufactures reported that the two industries were made up of 624 manufacturing establishments (plants) owned by an estimated 570 companies. Based on both employment and establishment data, the machine tool industry is concentrated in the Midwest. However the majority of new foreign investment and U.S.-owned plants were constructed in the South and Southeast.

Although machine tools are the most basic of all manufacturing equipment, the industry itself is very small. Total employment is 72,700, of which 47,400 are production workers. These figures are down significantly from their peak in 1980, when the industry employed 108,000, including 71,700 production workers. Total gross book value for the industry is slightly more than $2 billion. Average sales per firm were less than $6 million and average employment is fewer than 150 workers per firm. Based on shipments, the industry as a whole would rank approximately 125 in the Fortune 500.

Shipments, orders, and exports have been robust during the past three years. According to the U.S. Bureau of Census' Current Industrial Report (CIR), machine tool producers shipped $3.9 billion in 1990. Data reported in the CIR represents about 65 percent of all the machine tools produced in the United States and slightly more than 90 percent of the machine tool industry's revenue. CIR implicit order data represented machine tool orders for 1988 of $3.8 billion, up 50 percent from 1987 levels. In 1989, orders fell 15 percent, and 1990 orders also were approximately $3.3 billion. NMTBA, the Association for Manufacturing Technology reports order activity on a monthly basis for new complete machine tools valued at more than $2,500. In 1988, NMTBA found that orders climbed 70 percent, followed by a decline of 21 percent in 1989, and a marginal decline in 1990.

The domestic customer base for the machine tool industry has changed very little in the past three years. The auto industry continues to account for approximately 33 percent of total machine tool orders through direct purchases. This figure is closer to 40 percent if orders by automotive subcontractors are included. Although aerospace remains the second largest buyer of metalworking equipment in the U.S. with a 10 percent share, it has slipped to nearly half its share in the mid-1980s. The construction, mining, and materials handling machinery industry (SIC 353), which now accounts for nearly 10 percent of orders, is expected to move past aerospace in 1991. In general, increased orders from the minor machine tool buying industries have offset declines in auto and aerospace buying. However, foreign buyers are the fastest growing customers for U.S. machine tools.

INTERNATIONAL COMPETITIVENESS

Growth in export shipments has averaged 20 percent over the past three years and in 1990 surpassed $1 billion (in nominal dollars) for the first time. The leading export markets were Canada, Mexico, the United Kingdom, South Korea, and Germany. The five nations accounted for about 55 percent of total U.S. machine tool exports. During 1990, the fast growing export markets were the Soviet Union, Malaysia, Canada, Belgium, and India. A significant portion of the country's exports are centered on grinding machinery, large presses, and "used, rebuilt machinery and/or under $2,500." Exports of these three products areas exceeded $400 million in 1990 and represented 21 percent of all machine tool exports.

After a 17 percent surge in 1989, imports fell by nearly 12 percent in 1990 to $2.6 billion. As a result, import penetration for the industry moved downward to about 42 percent. The largest machine tool exporters to the U.S., accounting for nearly 80 percent of the total in 1990, were Japan, Germany, Taiwan, the United Kingdom, and Italy.

Outlook for 1991

Despite lower capital spending by the auto and aerospace industries, the two will remain the important markets for machine tools during 1991. Higher capital spending by other industries will offset the declines in aerospace and autos. During late 1991 and 1992, the construction, mining and materials handling industry is expected to surpass the aerospace industry as the second largest domestic machine tool consumer behind autos. Machine tool shipments are expected to grow 5 percent in real terms during 1991 and 3 percent in 1992.

Defense spending has typically accounted for 5 to 8 percent of industry orders. Defense spending for machine tools has fallen continuously since 1985, and there is not likely to be a near-term change in the Department of Defense demand for machine tools. If automakers are once again required to meet higher fuel economy standards, it will certainly boost capital spending by the auto industry.

In addition to the cyclical demands of customer industries, domestic machine tool demand is certain to suffer as a result of cyclical factors in the economy. A recession generally results in capital spending cuts. However, the expected downturn in 1991 may be an exception. The domestic and international economies are inundated with unusual structural demands that are likely to result in continued growth in capital equipment shipments.

At the forefront of these issues is a general capacity constraint problem in Japan and Europe. For the first time in recent history, Japanese machine tool builders' backlogs and delivery schedules have equalled those of their U.S. counterparts. The latest Japan Machine Tool Builders' Association press release states that backlog orders are equal to 5.7 months at current shipping rate; the comparable U.S. figure is 5.2 months. Japanese durable goods manufacturers are experiencing a surge in domestic capital spending. Although the growth in spending is expected to slow, the machinery industry's shipments have not stayed abreast of current demands. Further growth will add pressure to industries like the Japanese machine tool industry which are already working at capacity.

The high capital demand in Japan is a result of three factors: increased consumer demand, a declining pool of skilled labor, and new legislation that will reduce the work week from 48 hours to 40 hours by March 1992. Japanese manufacturers are acquiring capital equipment not for capacity expansion but to improve productivity of a declining force. Europe, and particularly Germany, is undergoing a similar but less dramatic experience.

Japanese and European initiatives to automate and invest in the latest technologies are all the more important in the face of increased oil prices. Reduced scrap, energy conservation, and improved quality have become as important to remaining competitive as improving labor productivity. It is in this area that U.S. manufacturers have the biggest disadvantage. Changes in component costs and energy prices have a much greater impact on U.S. production costs than on those of foreign competitors. U.S. firms will necessarily invest in new technologies not only to improve their competitiveness but to ensure their short-term viability. According to Production magazine's annual capital spending survey, the percentage of firms that buy machine tools to "improve productivity" rather than to "increase capacity" has increased 10 percent in just the past two years. This may explain why only 18 percent of the respondents plan to decrease capital spending because of an expected decline in manufacturing activity. Based on its survey, Production projects a 1 percent increase in capital spending.

Other structural changes that are certain to affect U.S. machine tool demand include environmental legislation and impending changes in the export controls on machine tool and control technology.

Japan's machine tool exports to the U.S. fell by more than the total decline in U.S. imports in 1990. In other words, the Japanese decline in dollar volume represented the entire decline in imports. As two more Japanese-owned plants and several European-owned transplants began full production runs in 1989 and 1990, U.S. shipments of several machine tool products grew significantly. In addition to servicing U.S. demands, this output added to the U.S. trade flow with other American and European nations. Only the German firm, Trumpf, and the Japanese firm, Mazak, have publicized the export portion of their operations, but the volume which the transplants are contributing to U.S. exports certainly exceeds the exports of these two firms. The expansion of transplants has contributed to the decline in import penetration and the marginal improvement in the health of the industry. In the next two years, foreign investment in the machine tool industry is expected to continue at its current pace. Future foreign investment will include more takeovers, mergers, and acquisitions than occurred during the previous three years.

Long-Term Prospects

In real terms, U.S. machine tool shipments are expected to expand by 3 percent a year through the next five years.

An imminent shortage of skilled labor heads the list of issues that will have a significant impact on the U.S. machine tool industry. It will force all of the metalworking industries to invest in more productive manufacturing facilities, including automated production equipment.

The globalization of markets has led to more outsourcing - the production of components in newly industrialized countries. In turn, producers in these industrialized countries have adopted modern technologies to ensure that their products meet the requisite standards of quality. U.S. machine tool producers have found these foreign producers to be lucrative markets. South Korea has been one such market, and Thailand, Indonesia, and Brazil show similar promise.

At home, much depends on the outcome of product liability reform. According to a recent NMTBA survey, approximately 25 percent of the U.S. machine tool manufacturers have no product liability insurance. In some cases producers could not find insurance. Most machine tool firms reported that they could not justify the cost of the insurance. The survey found that settled claims averaged $71,000 and that court awards averaged slightly more than $1 million. For a firm that can not afford or obtain coverage, a single product liability award can mean bankruptcy. - Patrick W. McGibbon, Office of Capital Goods and International Construction, (202) 377-0314, September 1990.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) Economic Handbook of the Machine Tool Industry, NMTBA, the

Association for Manufacturing Technology, 7901 Westpark Drive,

McLean, VA 22102. Telephone: (703) 893-2900. Metalworking Equipment, Current Industrial Report, Series MQ-35W,

Bureau of the Census, Industry Division, U.S. Department of Commerce,

Washington, DC 20230. American Machinist, Penton Publishing, 122 E. 42nd Street, New York,

NY 10168. Telephone: (212) 867-9191. Production, Gardner Publishing, 6600 Clough Pike, Cincinnati, OH

45244. Telephone: (513) 231-8020.

METAL CUTTING TOOLS

Metal cutting tools continued to show respectable growth in 1990, with product shipments up by more than 2 percent in constant 1987 dollars.

Metal cutting tools (SIC 35451) perform the actual cutting on the machine tool and require frequent replacement or re-sharpening. They include mills, reamers, drills, taps, and various forms of indexable inserts.

The rapid growth in new orders and product shipments slowed in 1990 as new orders fell during late 1989 and the first half of 1990. However, given the normal lag in shipments and an improved export performance, current-dollar product shipments were expected to rise by 4 percent in 1990, to $2.44 billion. This came on the heels of a 10 percent rise between 1988 and 1989, to $2.34 billion, that marked the end of a long period of stagnation. In constant 1987 dollars, product shipments reached $2.28 billion, a 2 percent increase over 1989.

INTERNATIONAL COMPETITIVENESS

Rising exports fed the improved performance of the metal cutting tools industry in 1989 and should contribute significantly to the increases that were expected in 1990. With exports expected to rise by 50 percent in 1990 to $272 million, the industry would have a positive trade balance. Canada, at $120 million, or 44 percent of the total, remains the leading U.S. export market. Germany, the number two export destination, accounted for $28 million, or 10 percent of the total. Other leading importers of U.S. cutting tools were Japan, Mexico, and the United Kingdom, each with about 5 percent of the total.

U.S. imports of metal cutting tools rose again in 1990, reaching $246 million, a 32 percent increase over 1989. The increase is deceptive, however, as it followed an unusually steep decline in imports during 1989, when they fell by 36 percent to $187 million. The import volatility was ascribed to changes in exchange rates and the establishment in recent years of several new foreign-owned manufacturing plants in the United States. Cutting tools were imported from many countries. The 1990 import leaders were Japan (30 percent), Germany (13 percent), and Canada (10 percent).

Manufacturers continue to exploit new technologies, such as advanced ceramic cutting tools, despite the high costs involved in fabricating these tools. The industry continues to expand the use of carbide tooling at the expense of high-speed steel.

Outlook for 1991

With cutting tool orders falling through most of 1990, the effects should be felt in 1991. Consequently, product shipments are expected to decline by about 2 percent in constant 1987 dollars, falling to their 1989 level. Exports should show a further increase of 11 percent to $302 million. With imports expected to rise by 14 percent to $280 million, the U.S. trade balance in cutting tools should again be positive in 1991.

Long-Term Prospects

The industry will have a mixed performance during the next five years, posting a 1.5 percent compound annual growth in constant 1987 dollars. Much of the growth for the period will come about through the sale of cutting tools that use new and exotic materials that enhance productivity. The high cost of manufacturing ceramic tools may raise the cost per unit of new cutting tools, while initially cutting overall sales volume until the customer base is fully cognizant of the need for improved tooling. As the technology of more rigid machine design, higher speeds and horsepower are being applied on the shop floor, more highly specialized tooling will be needed.

The industry's trade balance has improved markedly between 1988 and 1991. Although import growth may be slowed by further foreign investment in U.S. facilities, the positive balance will not necessarily continue during the next five years. - Edward D. Abrahams, Office of Capital Goods and International Construction, (202) 377-0312, September 1990.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) 1987 Census of Manufactures, Metalworking Machinery, MC87-I-35C,

U.S. Bureau of the Census, Washington, DC 20233. Cutting Tool Engineering, CTE Publications, Inc., Northfield, IL 60093.

Telephone: (708) 441-7520.

ROBOTICS

The robotics industry is composed of approximately 60 to 70 producers and robotic systems integrators. The value-added products produced in the U.S. are in such robotic accessories as vision systems, sensing and proximity devices, end-of-arm tooling, and motion controllers. Information on the U.S. robotics industry is difficult to obtain because no single Standard Industrial Classification (SIC) code encompasses the industry. Rather, the industry's products are coded by the primary function of the end-product. For example, welding robots are classified in SIC 3548, electric and gas welding and soldering equipment. As a result, there are no Census Bureau data on employment or value added. Shipment, order, and trade data are available through the Bureau of Census' Current Industrial Report (CIR) on robotics as well as from the industry association, Robotics Industries Association (RIA).

Orders in 1990 slid 5 percent from the record established in 1989. Based on RIA data, orders booked in 1990 totalled slightly less than $500 million. RIA reported that 25 percent of the total represented international business. Projected data for 1990 show that orders outstripped the $425 million in shipments by $75 million. The net result is that the industry's backlog continued to grow, rising 32 percent to $310 million. At current shipment rates, this represents nine months of shipments.

The Census Bureau's latest available statistics on the domestic robotics industry were reported in the June 1990 Current Industrial Report (CIR) for robots and accessories (MA35X). It reported 1989 shipments of 2,217 complete U.S.-produced robots, with a value of $151 million. This represents an 8 percent decline in unit production and a 3 percent decline in dollar volume. Accessories shipments were valued at $105 million in 1989, up 42 percent from the previous year.

INTERNATIONAL COMPETITIVENESS

Estimated exports of robots and parts for 1990 totalled $100 million, a 61 percent increase over 1989. Complete robots represented $67 million for a total of 6,000 units. That is nearly twice the unit volume exported in 1989. Imports of robots and parts totalled $160 million during 1990, down 30 percent from 1989. Complete robots imported in 1990 represented approximately 24,000 units and $125 million.

Robotic applications are primarily in welding, painting, and material handling. Approximately 20 percent of the robots put in place during 1990 were used in spot welding. Assembly applications accounted for 25 percent of the market, while materials handling and painting accounted for another 40 percent. The remaining applications included inspection, quality control, and personal services. Particularly interesting are the advancements in application research for robotics in the medical and commercial cleaning industries.

Outlook for 1991

In spite of relatively strong orders and a growing backlog, shipments in 1990 did not increase as expected. Orders in 1991 will remain unchanged, but shipments will necessarily advance by more than 15 percent to prevent the backlog of orders from getting out of control. Unless the pace of shipments picks up, domestic customers will seek systems integration from foreign sources and/or cancel orders with U.S. integrators.

The industry's primary customer is the auto industry, which accounts for nearly 50 percent of robotics purchases. Dependent as it is on the capital spending decisions of the auto industry, the robotics industry is subject to volatile cyclical swings. This dependence on the auto industry should lessen, however, because of the robotics industry's success in diversifying its customer base. For example, new orders from the electronics and service industries are helping to offset expected declines in spending by the auto industry.

Structural changes in the labor market are forcing even the auto industry to continue investing in robotics. A labor shortage is forcing metalworking firms to invest in more productive equipment and methods. In numerous instances, consequently, manufacturers are substituting robotics for skilled labor or utilizing robotics to relieve skilled labor from performing mundane functions. Furthermore, strict Occupational Safety and Health Administration (OSHA) standards on workplace hazards will spur demand as more employers substitute robots for employees in hazardous environments.

Long-Term Prospects

The outlook for the robotic market is promising, with shipments expected to grow 7 percent over the next five years.

Despite heavy investment aimed at developing new applications for robotics, the industry is still too dependent on the auto industry. The most promising new applications are in food processing, where some integrators have developed a market for robotic technologies such as materials handling, inspection, and cutting. Other areas of new applications are the marriage of new technologies to robotics, such as waterjet cutting. Advancements in positioning accuracies, mobility, tele-operations, and artificial intelligence will certainly open new markets as they become economically feasible.

Two relatively recent structural changes in the market may also aid in expanding the robotics market in the next five years. One is the shortage of skilled labor discussed earlier. The other is the emergence of a secondary market for robotics. Nearly 37,000 robots have been installed in the U.S. and another 20,000 will be put in place during 1991. Robotics houses are finding that users increasingly seek rebuilding services and second-hand robots. The expansion of the used robotics market and a growing need for rebuilding services will open new markets as first-time buyers experience the benefits of robotics at used prices. Refurbishing of older robots also will provide the robotics industry with a steady source of rebuilding revenues.

The diffusion of robotics technology will eventually create a customer base capable of supporting a viable and competitive industry. With the sale of Cincinnati Milacron's robotics division to ABB of Switzerland, the question is whether there will be a domestic industry to support. - Patrick W. McGibbon, Office of Capital Goods and International Construction, (202) 377-0314, September 1990.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) American Machinist, Penton Publishing, 122 E. 42nd Street, New York,

NY 10168. Telephone: (212) 867-9191. Production, Gardner Publishing, 6600 Clough Pike, Cincinnati, OH

45244. Telephone: (513) 231-8020. Managing Automation, Thomas Publishing Company, 5 Penn Plaza New

York, NY 10001. Telephone: (212) 695-0500. Robotics Industries Association, 900 Victors Way, P.O. Box 3724 Ann

Arbor, MI 48106. Telephone: (313) 994-6088. Robots, Current Industrial Report, Series MA35X, Bureau of Census,

Industry Division, U.S. Department of Commerce, Washington, DC

20233.

NUMERICAL CONTROLS

In spite of a significant decline in positioning type numerical control (NC) devices, NC shipments are projected to grow 5 percent in 1991 and 5 percent in 1992, in real terms.

Based on dollar volume, numerical controls represent 4 percent of the relays and industrial controls industry (SIC 3625), under commodity lines 362525 and 362526. Approximately 50 to 60 firms contribute production data to the Census Bureau. They include producers of continuous path controls, digital readout devices (DROs), and positioning-type controls.

Shipments of NC devices peaked at 105,000 units in 1988, but the dollar volume hit a new high of $225 million in 1990. Continuous path controls are the fastest growing segment of NC devices, registering a unit production growth of 33 percent, 25 percent, and 15 percent from 1988 through 1990. Production of digital readout devices is also up, averaging an 18 percent growth rate over the past three years. Production of positioning type devices fell, however, from 55,000 units in 1988 to about 40,000 in 1980.

INTERNATIONAL COMPETITIVENESS

Approximately 16,000 NC devices of all types were imported into the U.S. during 1990. This represented an 18 percent increase over 1989. Dollar volumes were virtually the same, at $53 million. Japan represents 79 percent of NC devices imported during 1989 and shipped an estimated 88 percent of the 1990 NC devices imported. U.S. exports were off significantly in 1990 from the 9,154 units posted in 1989, valued at $41 million. Optimistic estimates for 1990 projected an export total of 3,700 units, with a value of $35 million.

In addition to the NC devices sold separately, the U.S. market for NC machine tools continues to climb.

Outlook for 1991

Continuous path and DRO shipments will continue to outpace the growth in machine tool shipments, but declining use of positioning type NC devices will be a drag on industry shipments. In real terms, NC shipments are projected to grow 5 percent in 1991 and 5 percent in 1992.

Apparent consumption data for NC machine tools continues to account for a larger share of the total machine tool market. In 1984, as the metalworking industries were rebounding from a severe recession, NC equipment as a share of total machine tool consumption was 17 percent of units and 39 percent of value. Based on 1990 apparent consumption data, NC equipment accounted for 25 percent of units and 50 percent of value for the U.S. machine tool market. Although machine tool orders are flat, NC orders' share of the total is growing, and likewise the absolute production levels of NC devices. Other areas where NC devices are used for motion control are experiencing significant growth, too. Robotics industry shipments are expected to expand over the near term, along with woodworking machinery and the use of NC devices on waterjet cutting equipment.

Long-Term Prospects

During the next five years, NC production will grow by an average rate of 5 percent a year in real terms.

Quality and productivity are the key to continued competitiveness of U.S. firms. NC technology has improved the accuracies of machines and permitted skilled machinists to operate multiple units or even multiple cells. U.S. firms must improve the ratio of automated machinery to total equipment stock if the United States is to regain market share lost to foreign industry.

Research and development continues on the "next generation controller" (NGC), both here and abroad. The Japanese have proposed an international research effort on manufacturing technology of which motion control/ factory control is a critical item. In mid-1990, the Robotics and Manufacturing Research Laboratory of New York University demonstrated that the NGC may be realized in the near future. In the laboratory, researchers have utilized off-the-shelf components to construct an NC milling machine with an open-architecture computer control. The computer permits much easier integration of information from gauges, feedback systems, and sensors than standard industrial NC devices. Open architecture is passe in the computer industry but a major development in industrial controls.

NC builders have markedly improved their use of recent computer technology into controls. Control builders have already begun to explore open platforms utilizing the most current microprocessors and highest speed chips without major redesigning efforts. Others are exploring the use of reduced instruction set computing (RISC) technology in controls. RISC technology narrows the set of operations of the microprocessor's focus. RISC technology is expected to allow NC machines to take shorter runs on workpieces with improved part quality by eliminating following error. Following error is a discrepancy between what is actually occurring at the point of contact of the tool and metal and what the computer interpolates as occurring.

Advances in control technology and NC equipment's growing share of total equipment sold ensure that NC demand will outpace general industrial equipment demand. - Patrick W. McGibbon, Office of Capital Goods and International Construction, (202) 377-0314, September 1990.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) Economic Handbook of the Machine Tool Industry, NMTBA, the

Association for Manufacturing Technology, 7901 Westpark Drive,

McLean, VA 22102. Telephone: (703) 893-2900. American Machinist, Penton Publishing, 122 E. 42nd Street, New York,

NY 10168. Telephone: (212) 867-9191. Production, Gardner Publishing, 6600 Clough Pike, Cincinnati, OH

45244. Telephone: (513) 231-8010. Managing Automation, Thomas Publishing Company, 5 Penn Plaza New

York, NY 10001. Telephone: (212) 695-0500. Switchgear, switchboard apparatus, relays and industrial controls, Series

MA36A, Bureau of the Census.

TOOLS, DIES, JIGS, FIXTURES, MOLDS

AND CONTRACT MACHINING

Following a 4 percent real decline in 1990, business activity in this area will grow at a real rate of 4 percent in 1991 and 1992.

The grouping includes firms in special dies and tools, die sets, jigs and fixtures, industrial molds industry (SIC 3544) and "receipts for machine shop job work" (35995) included in Industrial Machinery, not elsewhere classified (SIC 3599). SIC 3544 includes contract tool and die shops that primarily engage in manufacturing on a job or order basis, special tools and fixtures for use with machine tools, hammers, die-casting machines, and presses. Firms that produce molds for working rubber, plastic, metal, and glass, and firms that produce special machines also are included in this industry. The Bureau of Census' 1987 Census of Manufactures states that there are 7,207 establishments in SIC 3544, with only 1,517 having more than 20 employees. An estimate of actual number of contract shops, including those that classify themselves within their major customer industry, places the industry at 14,000 firms.

Estimated product revenues for SIC 3544 and SIC 35995 show that 55 percent of 1990 shipments were derived from contract machining. Special tooling (other than molds) amounted to 30 percent of the industry's revenues and producing molds accounted for the remaining 15 percent. Following a modest increase during 1989, shipments moved downward 5 percent in 1990 to $19 billion.

INTERNATIONAL COMPETITIVENESS

Exports of molds climbed 10 percent from $419 million in 1989, to $460 million in 1990. Exports of dies rose 12 percent, from $81 million to $91 million in 1990. Only exports of jigs and fixtures fell, by 23 percent in 1990 to $32 million.

Imports of special tools and dies were down significantly in 1990. Estimated mold imports in 1990 were $480 million, down 3 percent. Although imports from Canada climbed 10 percent, imports of molds from Japan declined by about 33 percent. The import of dies and special tools dropped nearly 38 percent in 1990 to $208 million. The largest supplier nation was Japan, with nearly $130 million in spite of a 40 percent decline in dollar volume. Canada was the second largest with $40 million, up 60 percent from the previous year.

Outlook for 1991

Inventory corrections among customers caused a 4 percent decline in the tooling and contract shop industry's 1990 revenues. Fortunately, the inventory correction for the materials working industries has run its course and industry shipments for SIC 3544 and SIC 35995 will pick up in 1991 and 1992. A 4 percent real increase in shipments is projected for both 1991 and 1992.

Industries that registered increased order activity at the end of 1990 include the construction, mining and materials handling industry (SIC 353); motor vehicle parts (SIC 3714); household appliances (SIC 363); and the electronic components industries (SIC 367). Orders placed with firms in SIC 353 were up 7 percent at years' end. The increased activity in SIC 353 will result in additional job work and special tooling orders as the major players in these industries (such as Caterpillar) rationalize production and capacity needs. As a result, reliance on job shops for components, tooling, and special machines will increase. Orders for household appliances are expected to grow by 2 percent during the first half of 1991. In addition, both the electronic components and automotive parts industries are expecting a 2 percent increase in orders through the first quarter of 1991. The impact on the contract shops will be positive but marginal.

The financial pages are replete with stories of an impending recession. However, a recent Bureau of Census report on planned plant and equipment expenditures projects small but positive growth in capital spending. The report states that metalworking firms plan to increase capital spending by 3 percent in 1991. In addition, exports will increase dramatically. Recent statements by National Tooling and Machining Association (NTMA) executives note that the industry is optimistic about the outlook for exports. Efforts to expand the burgeoning export market include an NTMA-sponsored procurement fair with key metalworking executives of Japanese metalworking firms, and plans for a U.S. contract shop trade fair in Europe in 1991.

Long-Term Prospects

Firms producing these products are expected to experience real growth of 3 percent over the next 5 years.

The severe shortage of skilled labor in the metalworking industries is much more severe in these firms within SIC 3544 and SIC 35995, many of which have fewer than 20 employees. In recent years, these smaller firms have managed to outpace larger companies in terms of wages, benefits, and job security. Nevertheless, larger companies have maintained an edge in attracting skilled labor. The industry and NTMA have addressed recruiting and training problems in many NTMA chapters and have made headway against the negative image of a career in machining. Currently, U.S. manufacturers are training only 20 percent of the skilled labor that will be required by 1995. NTMA has supported legislation to change immigration laws to give skilled workers priority.

Exports are playing a more significant role in production schedules and are expected to grow. U.S. contract shops have explored and exploited markets in Europe and Japan. The next step is to increase sales to developing markets in South Korea, Thailand, and South America. - Patrick W. McGibbon, Office of Capital Goods and International Construction, (202) 377-0314, September 1990.

Additional References

American Machinist, Penton Publishing, 122 E. 42nd Street, New York,

NY 10168. Telephone: (212) 867-9191. Production, Gardner Publishing, 6600 Clough Pike, Cincinnati, OH

45244. Telephone: (513) 231-8020. Job Shop Technology, Edwards Publishing Company, P.O. Box 7193, 16

Waterbury Road, Prospect, CT 06712. Telephone: (203) 758-6663. Modern Machine Shop, Gardner Publications, 6600 Clough Pike, Cincinnati,

OH 45244. Telephone: (513) 231-8020. Tooling & Production, Huebcore Communications, Inc., 29100 Aurora

Rd., Suite 200, Solon, OH 44139. Telephone: (216) 248-1125. The National Tooling and Machining Association, 9300 Livingston Road,

Fort Washington, MD 20744. Telephone: (301) 248-6200.

POWER DRIVEN HAND TOOLS

The U.S. power driven hand tool industry faces a period of slow to negative real growth. In constant dollars, product shipments were expected to rise by about 2.5 percent in 1990, continuing a pattern of slowing growth. Between 1987 and 1990, product shipments increased 17 percent in constant dollars, with most of the increase coming between 1987 and 1988. The power tool industry is highly sensitive to changes in new residential construction and the rate of spending for rehabilitating existing housing units. Overall, the near-term performance of the power tool industry hinges on demand for new and existing residential units.

Driven by rising demand for new cordless power tools, current-dollar product shipments were expected to reach $2.44 billion in 1990. In constant 1987 dollars, product shipments were expected to increase by 2.5 percent to $2.21 billion.

INTERNATIONAL COMPETITIVENESS

While the balance of trade in power tools will continue to be negative, imports in 1990 should decline for the first time since the 1982 recession. With domestic demand slowing, imports are expected to drop by about 3 percent, to $807 million in 1990. This trend also reflects increased production in U.S. plants of Japanese and German firms. Export will continue to climb modestly, rising about 7 percent to approximately $554 million.

Although exact figures are unavailable, industry sources estimate that cordless power tools constitute more than 25 percent of the electric tool market, with unit sales increasing by about 10 percent per year. Power tool manufacturers continued to expand their cordless tool offerings in 1990, with several announcing new cordless hammer drills. These firms offer professional tools with easily detachable spare battery packs, which allow the operator to use the tool while it is charging, and solar chargers to permit charging where electrical outlets cannot easily be accessed. As the nickelcadmium battery cell technology has advanced, applications have been found for more powerful tools, commonly up to 12 volts. Some professional tools have 13.2 and 24 volts of battery power. Both U.S. and Japanese firms are developing nickel hydride storage batteries suitable for use in power tools, with commercialization likely to occur in 1991. Nickel hydride batteries will ease hazardous waste disposal problems caused by nickel-cadmium batteries. Among consumer tools, the cordless power screwdriver remains popular, although industry sources expect shipments to begin leveling off. Introduction of the cordless screwdriver has allowed power tool marketers to reach such new customers as women, apartment dwellers, and others not accustomed to using power tools. Some of these consumers may eventually move up to more sophisticated power tools.

Demand for gasoline-powered chain saws rose by about 4 percent in 1989 to just over 1.4 million units, and was expected to show a similar increase in 1990. Sluggish chain-saw sales for nearly a decade had led the industry to discontinue some lines and encouraged foreign takeover of several U.S.-based suppliers. Furthermore, chain-saw demand is seasonal and unpredictable. An unusually severe number of natural disasters in 1989 and 1990, including tornadoes, hurricane Hugo, and the California earthquake, sent chain-saw sales surging.

Outlook for 1991

Product shipments of power tools should rise by about 1.2 percent in constant dollars during 1991. Product shipments will total about $2.24 billion in constant 1987 dollars, substantially higher than earlier estimates. Gains in product shipments of cordless tools will continue to pace the industry's growth, with chain saws and hammer drills also expected to show advances. Power tool imports are likely to resume their upward climb in 1991, reaching $845 million, a 5 percent increase over 1990. Imports from Taiwan, Hong Kong, Singapore, and other newly industrialized countries will show the steepest increases in 1991 and succeeding years. Demand for cordless tools should help push U.S. power tool exports higher again in 1991, with exports expected to show an 8 percent increase to $598 million.

Long-Term Prospects

The surge of imports that characterized the 1980s is unlikely to continue. However, imports will remain high enough to act as a brake on the growth of the U.S. industry. Foreign-owned power tool firms, primarily German, Japanese, and Swedish, should continue to expand their U.S. production, limiting import growth and increasing exports, primarily to Canada and Mexico.

Moreover, the industry will benefit from rising demand for - and increased exports of - cordless tools. Cordless tools, both consumer and professional, are expected to account for 28 to 30 percent of electric tool product shipments in the early 1990s. The development of the solar charger, for example, may allow power tools to be marketed in areas lacking readily available electric current. Although German firms are likely to offer stiff competition, U.S. power tool suppliers expect to increase exports to hitherto neglected markets in Eastern Europe and the Soviet Union. One U.S. hardware chain recently announced plans to sell hardware, including power tools, in the Soviet Union.

The marketability of power tools in foreign countries is significantly influenced by national standards. Standards may be used to block entry of tools to a given market. Conversely, the development of common national standards applicable over a range of countries may significantly reduce the costs of market entry. National standards adopted by the European Community, the Canadian Standards Association, and other standard-setting bodies will substantially influence the export potential for U.S. power tools in the 1990s.

Over the next five years the U.S. power tool industry is expected to grow at a compound annual rate of 1.5 percent in constant 1987 dollars. Even achieving this marginal growth rate will depend on continued growth in new residential and non-residential building construction and remodeling. In addition, the universe of power tool buyers must continue to expand, attracting more women, apartment dwellers, and new homeowners.

Manufacturers will continue to introduce new lines of accessories and replacement parts to meet aftermarket demand. Long left to specialty producers, the market for replacement parts such as carbide blades and drill bits has emerged as a highly competitive and fast-growing segment of the industry. - Edward D. Abrahams, Office of Capital Goods and International Construction, (202) 377-0312, October 1990.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) 1987 Census of Manufactures, Metalworking Machinery, MC87-I-35D,

U.S. Bureau of the Census, Washington, DC 20233. Building Supply Home Centers, Cahners Publishing Co., 275 Washington

St., Newton, MA 02158. Telephone: (617) 964-3030. Chain Saw Age, Associated Publications, Inc., P.O. Box 13390, Portland,

OR 97213. Telephone: (503) 287-6115. Do-It-Yourself Retailing, National Retail Hardware Association, 5822 W.

74th St., Indianapolis, IN 46278. Telephone: (317) 297-1190. Hardware Age, Chilton Publishing Co., Chilton Way, Radnor, PA 19089.

Telephone: (215) 964-4282. Home Improvement Center, P.O. Box 1400, Lincolnshire, IL 60069.

Telephone: (708) 634-2600. National Home Center News, Lebhar-Friedman Publishing Co., 444 N.

Michigan Ave., Chicago, IL 60611. Telephone: (312) 371-9400.

WELDING EQUIPMENT

In 1990, welding equipment shipments reached approximately $2.4 billion in 1987 dollars, an increase of 4 percent over 1989.

Because of higher interest rates and a sluggish economy, sales of welding equipment appear to be leveling off after two very good years in 1988 and 1989.

INTERNATIONAL COMPETITIVENESS

Exports of welding equipment, which rose 4 percent in 1990 to $470 million, helped to maintain growth in the industry.

Canada, traditionally the leading customer for U.S. welding equipment, accounted for 22 percent of the industry's exports. Other major buyers were South Korea (6 percent), Mexico (6 percent), Japan (5 percent), and the United Kingdom (5 percent). Resistance welders accounted for 37 percent of total export shipments, while gas welders and arc welders each accounted for 23 percent.

Imports of welding equipment dropped significantly in 1990 to $368 million. This represents a 23 percent drop from the 1989 total of $480 million. Electric arc welders, full or partly automatic, were the major imported item, totalling more than $65 million, with more than 60 percent coming from Japan. The major foreign suppliers to the U.S. were Japan (45 percent), Switzerland (13 percent), West Germany (8 percent), Canada (7 percent), and Italy (6 percent).

Mergers and acquisitions continued as more U.S. welding companies participated in buyouts and joint ventures with foreign firms.

Outlook for 1991

The relative low value of the dollar, along with aggressive export marketing by U.S. welding firms, have helped to eliminate the industry's trade deficit. A trade surplus of approximately $102 million was achieved in 1990. Continued export growth should maintain this positive trade balance in 1991.

Shipments of welding equipment are expected to maintain a moderate rate of growth in 1991, growing at about 3 percent in real terms.

Long-Term Prospects

Over the next five years, product shipments will grow at a compound rate of about 7 percent in constant dollars and reach approximately $3.6 billion.

Long-term, the outlook for the welding industry appears good. However, a continued downturn in the economy and a softening in those industries that use welding equipment will limit growth.

The industry continues to introduce new products and make technological advances that help to keep the United States in the forefront as a technological leader.

Many of the technological innovations will be exhibited at the American Welding Show in Detroit, Michigan, April 16-18, 1991. - Alexis Kemper, Office of Capitol Goods and International Construction, (202) 377-5956, September 1990.

Additional References

The Welding Distributor, Penton Publishing, Inc. 1100 Superior Avenue,

Cleveland, OH 44114. Telephone: (216) 696-7000.

COPYRIGHT 1991 U.S. Department of Commerce
COPYRIGHT 2004 Gale Group