Opportunities Abound for Custom Parts Manufacturers in 2018

There are always challenges facing small businesses, no matter how well the US economy performs. But despite them, 2018 (and likely 2019) offers US custom parts manufacturers and their customers many opportunities not seen in decades.

 

 

An article from Travis Hessman in Industry Week entitled ‘The Real State of American Manufacturing’ spells out both pros and cons for larger US manufacturers as they wrap up 2018 and move ahead into the new year.

 

On the one hand, many challenges face the US manufacturing industry today, ‘ranging from skilled worker shortages to long overdue capital investments and digital overhauls, complicated further by new tariff threats, looming trade wars, and governmental uncertainty clouding everything.’

 

The uncertainties surrounding trade policies coming from ‘a new business-minded presidency’ do present unique obstacles to small manufacturers and their customers. But the (ongoing) skill shortage and technology investment is nothing new, and businesses in manufacturing and in tech know these challenges come with the territory.

 

On the other hand, the positives for manufacturing are nearly unprecedented, at least to most active manufacturing business and technical professionals.

 

(US manufacturers) have an economy far healthier than any of us could have possibly imagined a decade ago when the auto industry was on life support and needed a government bailout. Now the Big 3, and the rest of U.S. manufacturing is supplemented by a tax overhaul designed to prop up American businesses plus a deregulation streak intended to accelerate growth and investment.’

 

Industry Week based these observations on its annual ‘IW U.S. 500 Report,’ which factors ‘everything from half a decade's worth of financial performance totals to inventory turnovers, assets, and share prices for every American manufacturing company that pulled in more than $1.17 billion in the past year.’ In short, the report lists the vitality of the top of the U.S. manufacturing supply and production chains.

 

The long and short of Industry Week’s report/data are that U.S. manufacturing saw a significant rise in vitality in 2017 – both manufacturing revenue and income rose an astounding 31%.

 

While things like inflation and ongoing trade policy adjustments offer some uncertainties, the top of the manufacturing food chain is enjoying a rapid, economic rebound that is creating new opportunities and prosperity.

 

How Are the Custom Parts Manufacturers Doing?

 

Data accounting for custom parts manufacturing supports the growth reported from Industry Week and shows the ‘trickle-down’ of orders and new work to be expanding for small U.S. manufacturers.

 

Recently, Gardner Business Intelligence (GBI) published updates to two of its recurring monthly indexes that measure U.S. discrete parts manufacturing performance.

In the first, GBI reports that ‘capacity utilization growth (is) fastest in 3 years.’

 

According to GBI’s assessment and in the chart below:

 

Durable goods capacity utilization was 75.9 percent in July 2018, the fastest rate since July 2015. The month-over-month rate of growth was 3.3 percent, which was the fastest rate of growth since July 2014, and the 1/12 rate of change grew for the 16th time in 18 months. The annual rate of growth accelerated for the second straight month, reaching its fastest rate of growth since June 2015. Even though the GBI: Metalworking backlog index has indicated that capacity utilization should have peaked or should be very close to peaking, it did not grow as fast as the backlog index suggested it would, suggesting that perhaps capacity utilization has not yet peaked.

The backlog index tends to lead capacity utilization by seven to 10 months, and capacity utilization tends to lead capital equipment consumption by seven to 10 months. Capacity utilization should peak in the second half of 2018, which would lead to a peak in capital equipment consumption sometime in the first half of 2019.

 

In the second report from GBI, ‘production (has grown) at (the) fastest rate in 4 years.’ From GBI:

 

Compared with one year ago, the durable goods industrial production index grew in July 2018 at its fastest rate in nearly four years. It increased 4.5 percent, the second time in four months with growth faster than 4.0 percent and the 14th month in a row that production grew at an accelerating rate. Further, in five of the past six months, the Index has had grown faster than 2.0 percent. As a result, the annual rate of growth accelerated to 2.5 percent, which was the fastest rate of annual growth since March 2015.’

 

Conclusion

 

The U.S manufacturing economy is robust at all levels. As regulation and tax reform measures continue to influence large manufacturers, the trend of growth in capacity utilization and production within small manufacturers will continue.

 

These conditions offer small custom parts and discrete parts manufacturers with tremendous growth opportunities to expand their businesses, grow new customer bases, and move into new industries and markets.