America's appetite for equipment falters

Modern Machine Shop, April, 2002 by Joe Jablonowski

For the first time since 1993, the United States falls from the top rank among the world's machine tool consumers, slipping behind Germany. Fall-off in the domestic market clobber American builders, whose already-depressed output falls another 17 percent in 2001.

America's metalworking shops and factories acquired only $5.36 billion worth of machine tools during 2001 .That's 21 percent behind the $6.77 billion consumed during 2000, which was 5 percent below the 1999 level, which in turn was 18 percent below that of 1998.

And while Congress plays politics with needed economic-stimulus packages, other countries expand their investment in productive equipment.

Last year Germany boosted its purchases of lathes, presses, machining centers, and so on around 8 percent to $5.58 billion, putting it into the top slot among the world's machine tool consumers. (See Top Consumers table.) The last time that the United States was not the world's leading consumer was in 1993, when China's rapid industrialization made it surge ahead for a year before falling back to its third-place position.

This time, too, China made a substantial gain, as did Italy and France. Even Japan, which has been troubled with three recessions over the past decade, managed to boost its investment 9 percent in 2001, following a 6 percent gain the year before. Among the large consumers, South Korea and Taiwan showed significant declines last year.

The international statistics come from the World Machine Tool Output & Consumption Survey (WMTO&CS), conducted annually by Gardner Publications, Inc., publisher of this magazine. The study measures output, trade and consumption from major industrialized nations.

For all its slipping consumption, the United States isn't going to see a quick rebound. New orders, which predate consumption deliveries by anywhere from a week to many months, keep slipping, too. Orders for new machines, tracked by a separate series of monthly reports from the two machine-tool trade groups, fared very poorly last year. The latest US. Machine Tool Consumption (USMTC) survey of participating member companies shows December orders down 46 percent compared to December 2000. That put the total orders for the year 2001 at 34 percent below the previous year. Or, as Ralph J. Nappi, president of the American Machine Tool Distributors' Association, puts it, "December orders were indicative ofa year that the industry is happy to close."

Put another way, the 2001 USMTC statistics show a year in which orders posted a 55 percent decline from their peak in 1997, and the statistics series had only started the year before that.

The Washington-area trade groups, AMTDA (Rockville, Maryland) and AMT--The Association for Manufacturing Technology (McLean, Virginia), have been pressing the government for relief in the form of accelerated depreciation, increased expensing, and even investment tax credits to stimulate U.S. metalworking factories to invest in the machinery their association members make and sell.

The value of machine tools installed last year in 28 countries is presented in the WMTO&CS table Top Consumers. The exclusive study dates back 37 years and is widely used as an objective standard of comparison around the globe.

The term "consumption" is a derived statistic. It's what economists call "apparent consumption," and it's calculated by taking a country's local production, subtracting out the value of its exports, and adding the value of its imports. So in the case of the United States, domestic builders shipped $2.95 billion and exported $1.38 billion. At the same time, importers brought in $3.81 billion, so apparent consumption for 2001 comes to $5.37 billion.

With total production of the surveyed countries coming in at $35.69 billion, Americans thus consumed 15 percent of the global value shipped. That compares with 19 percent a year ago. The Germans accounted for a slightly higher percentage, 15.6 percent. And China consumed 13.3 percent of the total surveyed production.

The American market continues to be highly import oriented, even though imports dropped 11 percent. The $3.81 billion worth of overseas-built machine tools has the United States leading the list of importers. (See Large Importers table.) (Traditionally the biggest sources are Japan, Germany, Taiwan, Switzerland and Italy.) By value, 71 percent of the country's appetite for equipment is satisfied by imports. That's about the same level of import penetration seen by France, Taiwan and Canada. The United Kingdom's ratio of imports to consumption is higher, exceeding 90 percent. However, this is a ratio that must be taken with a grain of salt: Some mercantile countries such as Belgium act as entrepots and actually import more than 100 percent of the value of their consumption, trans-shipping to other countries.

Machines Per Person?

A different way of looking at a country's new equipment is to compare it to the nation's size. Comparing expenditures to population, we get a per-capita figure that can help evaluate individual nations' relative rates of industrialization. By this measure the Swiss, who spent $679 million on new. machine tools for a population that numbers 7.2 million, continue to lead the world with a per-person expenditure of $93. The Germans are next at $67, almost tied with the Italians at $65. (See Per-Capita table.) The United States ranks 17th among the world's industrial nations in this measure, with a per-capita outlay of less than $20.