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Global manufacturing is coming up roses.

Next five, even ten years, look promising.

When Bill Cleveland's business associates peer into the crystal ball and talk about the global economic outlook, they are decidedly optimistic. It's all in the numbers, says Mr Cleveland, who is president of El Segundo, CA-based Craig Tools Inc, as well as president of the United States Cutting Tool Institute (USCTI), Cleveland, OH. All of the key economic indicators are healthy. "When combined with the apparent conservative economic trend throughout the world, it is causing many of my associates to actually use the number five and sometimes even ten when speculating about the future years' worth of health of this world economy," he states.

The global economy that has been talked about throughout much of this century has finally arrived, Mr Cleveland believes. "Those of us in the cutting tool industry spend more and more of our time chasing manufacturers - who were once strictly domestic - around the world." For example, Craig Tools participated in the EMO trade show last year in Hannover, Germany, and Mr Cleveland as president of USCTI gave an economic report at the European Cutting Tool Association (ECTA) meeting in Milan, Italy. Both organizations are joint sponsors of the first World Conference of Cutting Tool Manufacturers that was held last month in Boca Raton, FL.

Here, in Mr Cleveland's words is what he sees when he peers into his Crystal Ball of key indicators:

As can be seen from the USCTI chart [ILLUSTRATION FOR FIGURE 1 OMITTED], billings are on a steady rise as are incoming orders [ILLUSTRATION FOR FIGURE 2 OMITTED]. Machine tool orders [ILLUSTRATION FOR FIGURE 3 OMITTED] show a corresponding steady increase over a significant period. The most significant statistic in the face of more sales, more orders, 1.e. more demand, in the producer price index [ILLUSTRATION FOR FIGURE 4 OMITTED] being close to flat. Price stability in this environment means competition.

At the same time, exports [ILLUSTRATION FOR FIGURE 5 OMITTED] are up while the dollar is strong [ILLUSTRATION FOR FIGURE 6 OMITTED]. The prime rate has settled at a workable level [ILLUSTRATION FOR FIGURE 7 OMITTED] and shows no immediate sign of going up while we have an inflation rate of less than 2%.

All in all, this is a most remarkable mix of numbers. But no more so than housing and auto performance. Domestic housing starts are very healthy (Fig 8) and with low long term rates and less than 5% unemployment should stay that way. US car and light truck production is down a bit in some areas (but down from a high). Overall production is extremely healthy [ILLUSTRATION FOR FIGURE 9 OMITTED]. Imports should continue to increase with such a strong US dollar. Currently, GM has a 33.4% marketshare; Ford, 25.6%; Japanese automakers, 21.8%; Chrysler, 13.6%, and European brands, 4.2%. Global auto expansion continues as Ford is building a $1 billion plant in Brazil.
Exchange Rate Comparison
Currency per U.S. Dollar

 Sept 1996 Sept 1997 Strong/Weak

British Pound 0.6396 0.6179 Weaker
French Franc 5.1545 5.9135 Stronger
German Mark 1.524 1.7595 Stronger
Italian Lira 1518.75 1719.5 Stronger
Japanese Yen 110.82 120.35 Stronger

The aircraft industry is quite literally exploding. Profit for the world's airlines are at record levels. Total market for new commercial jets is $1.1 trillion through the year 2016. The industry will require 16,160 new jets of which 7330 commercial airplanes will be required in the next 10 years, valued at $490 billion. Air passenger traffic is expected to grow at 5.5% over the next decade compared with 6.6% in 1995 and 6.7% in 1996. The surge in Asian traffic, however, could be tempered quite dramatically by recent economic changes in that part of the world.

The big problem in aerospace is meeting demand. In attempting to double its production to about 40 aircraft per month, Boeing has run into major supply problems. It missed its projection for 1996 by 30 aircraft and in 1997 averaged 26.5 planes per month not including McDonnell Douglas aircraft or aircraft tendered for delivery. Their projection of 43 aircraft per month for the last two quarters of 1998 is going to be extremely difficult to attain. Severe supplier shortages are cited as the primary cause of the Slower production rate increase. In addition, increased production in general aviation and corporate jet industries are putting added pressure on parts suppliers. Production rates will be increased but at a slower pace as support industries add capacity. However, this bodes well for machine tool orders and employment.
Retail Car & Light Truck Sales (Units)

 YTD Aug. '96 YTD Aug. '97 % Change

Total Vehicles 10,406,106 10,261,400 -1.3%
Cars 5,955,200 5,716,600 -4.0%
Trucks 4,450,906 4,544,800 +2.1%
Domestic 9,171,680 8,949,800 -2.4%
Imports 1,234,426 1,311,800 +6.2%

Discussions with some of the member companies of ECTA turns to the usual topics plus the European Economic Community. Who will qualify and who won't? How is the timetable holding up? Will there be a common currency and what will it be based on? The next two years are going to be quite a ride for European manufacturing. Many old ties will be broken and new ones created. In the long run, it will make European companies stronger and more formidable competitors, especially when they don't have to worry about exchange rates and import/export restrictions among themselves. It will not be without its pain, but it is an acknowledged medicine for future growth.

Distribution in the European community is 20 years behind in its structure. This is something that will inexorably change as some of the larger distribution chains from the US enter the European market. The low cost efficiencies of these operations will cause local distributors to follow suit, merge, or leave the business altogether. There are some real opportunities for US companies to gain a real foothold in a dramatically changed and sophisticated marketplace.
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Title Annotation:forecasts for the manufacturing industry
Publication:Tooling & Production
Date:May 1, 1998
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