OEM sector is a shoo-in for industry's MVP award
By Staff -- Purchasing, 2/12/1998
If U.S. industry issued a most valuable player award, the original equipment manufacturing sector would be 1997's winner.OEMs upped production nearly 8% last year, according to the Reed Elsevier Business Economics Outlook for 1998. Such growth sparked a 5.1% surge in overall manufacturing output, marking U.S. industry's best performance since 1994.
Manufacturing output growth will slow to a more modest 3.4% pace in 1998, according the report, which is published by this magazine's parent. However, OEM producers will remain industry's shining stars, with output expected to swell another 6.1% this year.
Here's a breakdown of how each of the five OEM sectors fared in 1997 as well as predictions for future growth:
Industrial machinery and equipment: The high scorer of the OEM group is the industrial machinery and equipment sector. This segment of manufacturers churned out product at an impressive 11.3% clip last year. Much of that growth came from the red-hot computers and office equipment markets, which account for 27.9% of the total output produced within the broad machinery category. In fact, between 1992 and 1997, computer output has been the single fastest growing segment of the economy, averaging an annual growth rate of nearly 30%.
Reed researchers expect much of the same for 1998. According to the report, computer production will be up about 27% this year. By contrast, non-electrical machinery production is slated for a 1.6% increase in 1998.
Even so, computers and other electrical equipment will provide enough output to boost overall production in this sector by 9.4% this year.
Electrical machinery and components: While increasing production output an equally impressive 11.3% last year, the electrical machinery and components segment is a mixed bag.
The electrical component group, which includes much-in-demand semiconductors, upped its output by nearly 24% in 1997. And is expected to boost production by a similar factor this year.
However, these gains were nearly canceled out by a 21.6% decline in audio and video equipment production. The good news: Output will be up 4% in 1998.
Rounding out this sector, communication equipment makers expanded output 3.1% last year and are expected to hold production levels steady in 1998.
Upshot: A healthy appetite for electronic components will help this sector to increase output by more than 9%.
Transportation equipment: Buoyed by strong demand for new aircraft, the transportation equipment sector increased production by nearly 7% last year.
Despite an expected slowdown in orders for the second half of 1998, production levels for aircraft and related parts this year should be up 5.7% overall.
Automakers won't be so lucky. The industry, which saw production slide 1.1% in 1996, only realized slight gains in output in 1997, resulting mostly from demand for trucks and sport-utility vehicles. Prediction for 1998: Motor vehicle and auto-part production will hold steady.
Overall, the transportation equipment sector will increase output by 4.3%.
Instruments: Having experienced steady production expansion for the past several years, instruments producers saw much of the same in 1997.
A strong demand for medical devices should add an additional 2.3% to production levels.
Fabricated metals: Dwindling end-user demand has slowed the pace of production growth for this sector over the past few years.
After increasing output by 2.5% in 1996, this sector posted a gain of 2.1% last year. The largest increase in production came in the structural metal sector, which boosted output just under 4%.
In 1998, the fabricated metal makers should see production climb 1.6%
The complete Economic Outlook, which also includes insights on the overall economy, inventory trends, electronics and Internet use, can be ordered at (800) 662-7776.
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