Forecast 2004: adding up the pluses and minuses.

Author:Whitney, Mike
Position:Behind the numbers

It appears that sales of machine tools in the U.S. must experience a major increase during the final four months of the year 2003 for my 2003 forecast of a 6 percent increase in machine tool sales over 2002 to become a reality.

Sales would have to average 71 percent higher over the last four months than the rate for the first eight months of the year to reach my 2003 forecast.

So, ladies and gentlemen I blew the call. We don't even need instant replay to figure this one out.

Companies I speak with in the machine tool industry tell me that their business "seems to be getting better." For this we are all grateful. But what, you may ask, does this mean for the year 2004?

My approach to forecasting is to start by stating the positives and the negatives I see in the total environment for machine tool sales, so, here goes:

The major positives I see as we enter 2004 are: * Low inflation expectations (however, inflation will rise)

* By historic standards, low interest rates (that will begin to rise)

* It's an election year so heaven forbid anything resembling fiscal sanity

* Sustained high productivity in goods manufacturing

* Reduced overcapacity--due primarily to the retiring of old equipment

* New manufacturing technology that is much more productive

* Consumers have cash in their pockets and are itching to spend it

* A weakening dollar that can help U.S. exporters

* Buying to beat the expiration date (Dec. 31, 2004) of the tax law expensing provisions

The major negatives I see as we enter 2004 are:

* A reduction in mortgage re-financings as a source of consumer cash

* Overseas as a preferred final destination for U.S. manufacturers' investment dollars

* Health care cost increases that drain dollars from consumption and investment

* It's an election year and companies may reduce investment decisions if George W. looks vulnerable

* Excess players trying to eke out share in the U.S. machine tool market

* Corporate profit increases due to cost cutting in 2003 may not be sustainable in 2004

* Substitution of automation and manufacturing software to increase productivity rather than buying more machines

* Weak demand in export markets

With the exception of election year concerns, my positives and negatives for 2004 look pretty much like they did m 2003.

Machine tool industry executives I talk to ask the question, "With the reduction in U.S. machine tool sales (down approximately 70 percent since 1997), why haven't more builders exited the business?"...

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