Buyers say business is ugly
Heard On The Street
Tom Stundza, Executive Editor -- Purchasing, 1/11/2002 2:00:00 AM
The manufacturing economy will have a hard time poking its head above water in first half 2002. At least that's the view of buyers surveyed by Purchasing in December. "Business is down dramatically. This is the worst slowdown in the history of our company," says a purchasing agent for a metals-processing plant Toledo, Ohio. "And we don't think this environment will get any better over the next 6-8 months." A purchasing manager in Harvard, Ill. describes business for his cable-manufacturing firm in one word "Ugly." He says there are just enough orders to keep the plant afloat "but there's no uptick in sight."
Buyers note that fourth quarter capacity utilization rates dropped in their plants, companies and industry segments. This has resulted in dramatic slowdowns in purchasing activity, and layoffs of buyers as well as design engineers and production personnel. "Bookings last quarter were 30% off forecast, so production capacity was running at about 45%," says a purchasing manager for a maker of induction heating equipment in Warren, Ohio. "The in-house prediction is that business will continue in this mode well into second quarter."
A senior buyer in Tiffin, Ohio says "Our customers are waiting for the economy to improve before making any purchases of finished products." That means his machine tool manufacturing organization is holding off on raw materials purchases as well, which fits with market data showing that metalworking machinery purchases fell more than 30% in 2001.
Purchasing’s grass roots Business Survey buttresses Federal Reserve reports that output at U.S. factories fell again in December, registering its thirteenth drop in the last 14 months.
Weakness is widespread, according to the survey, with reduced operations reported by buyers in titanium, steel and aluminum processing, large refrigeration equipment, automotive parts, food processing equipment, consumer packaged goods, and printed circuit board manufacturing industries, among others.
"Semiconductor capital equipment business is still trending down," adds a purchasing manager at an assembly plant in Beaverton, Ore., "and demand is expected to trend even lower in 2002." Note that semiconductor manufacturing equipment purchases declined 38% in 2001, the single greatest annual decline in the sector's history, and a strong recovery in orders is not expected for several months. Industry insiders see sales as flat to slightly down in 2002. Similarly, "the market for resistance welding equipment is still depressed," says a purchasing agent for a welding gear manufacturing plant in Grand Rapids, Mich. "We expect this segment of the capital goods/equipment market to be down for the next 6-9 months,"
Prices nosedive
In the current manufacturing environment, it's hardly a shock to hear from buyers that pricing for materials and components continued to soften. Compared to November, price declines were reported for aluminum, carbon steel, stainless steel, copper mill, brass mill, and powder-coated metal mill products. Continued slippage in sheet steel prices brought the annual average for a market basket of flat-rolled products down 20.5% for the year. Prices also were reported to have softened for various chemicals and plastic resins, and such specialty items as silicone-based transformer oil.
Depressed pricing is evident also in the market for building materials. "Lumber prices are depressed" because of oversupply, says the purchasing manager for a builder of commercial, industrial, retail and professional structures based in Remington, Ind. There are extra long leadtimes for imported specialty lumber, but prices haven't increased, says a purchasing agent at a plant making equipment-hauling trailers in San Bernardino, Calif.
That's not so say that some prices haven't risen. "There have been price increases due to specification changes for some electrical coils," notes the purchasing agent of an outdoor motor manufacturing plant in Fond du Lac, Wis. "Supply of scrap plastic is down due to the decline in auto production, and that is pushing up prices," says a purchasing manager at a composites plant in Dayton, Ohio. "Leadtimes are now extended for abrasion-resistant tempered safety glass so prices are heading up," says the materials purchasing manager for a fire apparatus manufacturer in Clintonville, Wis.
Buyers also report extended leadtimes for specialty engineered and made-to-order parts and components. "Though suppliers are begging for business, leadtimes have gone out considerably due to worker layoffs," says a project-coordinating engineer for a manufacturer of automotive components in Long Island City, N.Y. Delivery scheduling for hardware "has become less flexible," says a purchasing administrator at a computer producer in Huntington, Calif. And custom-machined parts are being delivered later than usual, says a purchasing officer at a manufacturing diagnostics producer in Harrisburg, Pa.
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