Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
U.S. Economic, Industry and Gears Outlook: What’s in Store for 2012 and Beyond Gear Expo – Cincinnati November 2, 2011 Tom Runiewicz (Principal/Economist US Industry Practice) Gear bookings and the economy do not move in lock step…but Gear Bookings & The U.S. Economy 3100 8 2600 4 2100 1600 1993 1997 Bookings - $ Mil. 2001 2005 2009 GDP - % Change Growth in Gear Bookings & The U.S. Economy Percent change from a year earlier 90 60 12 9 0 30 0 6 3 -4 -30 -60 0 -3 2000 2002 2004 2006 2008 2010 Bookings GDP % 2 Copyright © 2009 IHS Global Insight. All Rights Reserved. The Economic Outlook Slower Growth Ahead Diminished Expectations for the US Economy • Slow recoveries are typical in the aftermath of a financial crisis. • The US economy is dangerously close to stall speed; consumers and businesses are extremely cautious. • Confidence in US policy-making has hit new lows. • Business equipment investment, exports, and consumer durables will drive the economy’s modest near-term growth. • A recovery in housing markets will be the key to more robust economic growth in 2013-15. • The probability of a double-dip recession is 40%. 4 Copyright © 2009 IHS Global Insight. All Rights Reserved. Consumers are not happy Consumer Confidence Index (University of Michigan) 120 106 92 78 64 50 1979 1983 1987 1991 1995 1999 2003 2007 2011 5 Copyright © 2009 IHS Global Insight. All Rights Reserved. Housing continues to struggle…light vehicle sales are improving helped by incentives Housing Starts U.S. Light Vehicle Sales (Millons of Units) (Millions of Units - SAAR) 2500 24 2000 20 1500 16 1000 12 500 0 1996 1998 2000 2002 2004 2006 2008 2010 Monthly 3 Month Moving Average 8 1996 1998 2000 2002 2004 2006 2008 2010 Monthly 3 Month Moving Average 6 Copyright © 2009 IHS Global Insight. All Rights Reserved. ISM Indexes Signal Slow Grow in the Economy ISM Nonmanufacturing & Manufacturing Indices (over 50 = Expansion) 75 50 25 1998 2000 2002 2004 2006 2008 2010 7 Copyright © 2009 IHS Global Insight. All Rights Reserved. Rail traffic slowdown confirms economic distress US Railroad Ton-Miles (3 month moving average) 20 15 10 5 0 -5 -10 -15 -20 -25 04 05 06 07 08 09 10 11 8 Copyright © 2009 IHS Global Insight. All Rights Reserved. Trucking company volumes have leveled off ATA Truck Tonnage Index (Index 2000 = 100) 130 118 106 94 82 70 1996 1998 2000 2002 2004 2006 2008 2010 (2000 = 100) 9 Copyright © 2009 IHS Global Insight. All Rights Reserved. Small businesses remain depressed Small Business Optimism Index 1987 = 100 110 104 98 92 86 80 1996 1998 2000 Monthly 2002 2004 2006 2008 2010 3-Month Moving Average 10 Copyright © 2009 IHS Global Insight. All Rights Reserved. Corporate America is becoming more cautious about CAPEX New Orders for Nondefense Capital Goods Excluding Aircraft Percent change from a year earlier 30 20 10 0 -10 -20 -30 -40 1998 2000 2002 2004 2006 2008 2010 11 Copyright © 2009 IHS Global Insight. All Rights Reserved. Equipment leasing companies have soured on the economy Equipment Finance Confidence Index Index begins in May 2009 75 69 63 57 51 45 2009 2009 2010 2010 2011 12 Copyright © 2009 IHS Global Insight. All Rights Reserved. Modest US Economic Growth Results in a Persistently High Unemployment Rate 8 11 6 10 4 9 2 8 0 7 -2 6 -4 5 -6 4 -8 3 2001 2003 2005 2007 2009 2011 2013 Real GDP Growth (Left scale, annual percent change) Unemployment Rate (Right scale, percent) 13 Copyright © 2009 IHS Global Insight. All Rights Reserved. Interest Rates Will Stay Low for Several Years 12 (Percent) 10 8 6 4 2 0 1990 1993 1996 Federal Funds 1999 2002 2005 10-Year Treasury 2008 2011 2014 30-Year Mortgage Rate 14 Copyright © 2009 IHS Global Insight. All Rights Reserved. Manufacturing Production Has Decelerated (Percent change, annual rate) 10 5 0 -5 -10 -15 -20 -25 2000 2002 2004 All Manufacturing 2006 2008 2010 2012 2014 Excluding Information Technology 15 Copyright © 2009 IHS Global Insight. All Rights Reserved. Equipment and Software Lead the Recovery in Business Fixed Investment (Year-over-year percent change, 2005 dollars) 20 10 0 -10 -20 -30 1998 2000 2002 2004 2006 2008 Equipment and Software 2010 2012 2014 Structures 16 Copyright © 2009 IHS Global Insight. All Rights Reserved. The US Dollar Will Depreciate Against Currencies of Emerging Markets (Real trade-weighted dollar index, 2005=1.00) 1.50 1.25 1.00 0.75 0.50 1978 1982 1986 1990 1994 Major Trading Partners 1998 2002 2006 2010 2014 Other Important Trading Partners 17 Copyright © 2009 IHS Global Insight. All Rights Reserved. Destinations of US Merchandise Exports (Percent of total, 2010) Pacific Rim 25.5% China Japan All Other 9.0% 7.2% 4.7% Canada 19.5% Europe 22.4% Other Americas 10.8% Mexico 12.8% 18 Copyright © 2009 IHS Global Insight. All Rights Reserved. Real Export and Import Growth Patterns Reflect the Business Cycle and Exchange Rates 20 (Year-over-year percent change, 2005 dollars) 10 0 -10 -20 1998 2000 2002 2004 2006 Real US Exports 2008 2010 2012 2014 Real US Imports 19 Copyright © 2009 IHS Global Insight. All Rights Reserved. Capital Goods Lead Growth in Real Exports (Annual percent change, 2005 dollars) Computer Equipment Other Capital Equipment Aircraft Autos & Parts Consumer Goods Industrial Materials Foods & Feeds 0 5 10 2005-10 15 20 2010-15 20 Copyright © 2009 IHS Global Insight. All Rights Reserved. US Economic Growth by Sector (Percent change) 2010 2011 2012 2013 Real GDP 3.0 1.5 1.8 2.3 Consumption 2.0 2.1 1.9 1.8 -4.3 -2.5 5.1 17.1 Business Fixed Investment 4.4 7.8 4.3 5.7 Federal Government 4.5 -2.3 -2.9 -3.6 State & Local Government -1.8 -2.7 -2.9 -0.8 Exports 11.3 6.7 6.4 8.8 Imports 12.5 4.9 2.6 4.7 Residential Investment 21 Copyright © 2009 IHS Global Insight. All Rights Reserved. Other Key US Indicators (Percent change unless noted) 2010 2011 2012 2013 Industrial Production 5.3 3.7 2.0 2.9 Payroll Employment -0.7 0.9 1.0 1.3 Light-Vehicle Sales (Millions) 11.6 12.5 13.5 15.0 Housing Starts (Millions) 0.58 0.60 0.67 0.94 Consumer Price Index 1.6 3.2 1.6 1.8 Core CPI 1.0 1.6 1.7 1.7 WTI Oil Price ($/barrel) 79 94 98 106 Federal Funds Rate (%) 0.2 0.1 0.1 0.1 10-Year Treasury Yield (%) 3.2 2.8 2.7 2.9 22 Copyright © 2009 IHS Global Insight. All Rights Reserved. Bottom Line • With US economic growth near “stall speed”, the risk of a return to recession is high (40%). • • Consumers and businesses remain very cautious. • • The Federal Reserve powers to support growth are limited. Pent-up demand for housing will eventually be the key to stronger economic growth. Fiscal tightening is coming, but the big issues (entitlements and taxes) will not be settled until after the 2012 elections. 23 Copyright © 2009 IHS Global Insight. All Rights Reserved. The Outlook for Key Gear Markets Some Opportunities, But An Overall Downshift The Outlook for Key Gear Industries (With Market Demand Percentage From the 2007 Economic Census) 1) Industrial Machinery (27.4%) 2) Construction Equipment (22.0%) 3) Commercial Machinery (9.6%) 4) Agricultural Equipment (9.4%) 5) Shipbuilding (Including Offshore Rigs) (8.9%) 6) Railroad Equipment Manufacturing (6.1%) 7) Machine and Other Tool Manufacturing (5.8%) 8) Power Generating Equipment (5.4%) 9) Mining, Oil & Gas Field Equipment (3.7%) 10) Aerospace (1.7%) 25 Copyright © 2009 IHS Global Insight. All Rights Reserved. Industrial Machinery New Orders for Industrial Machinery Unfilled Orders for Industrial Machinery (Millions of Dollars) (Millions of Dollars) 5000 17000 4100 15200 3200 13400 2300 11600 1400 9800 500 1999 2001 2003 2005 2007 2009 2011 8000 1999 2001 2003 2005 2007 2009 2011 YTD Jan-Aug = Orders +15%, Unfilled Orders +22% Copyright © 2009 IHS Global Insight. All Rights Reserved. 26 Industrial Machinery Overview: Slower growth ahead • New orders for industrial machinery face something of an uphill battle. • Traditional manufacturing is slowing down as the “soft patch” in the economy proves softer and longer-lasting. • The high-tech sector is not immune to the weakness in the economy. • CAPEX programs among traditional manufacturers are coming under increased scrutiny. • The semiconductor equipment spending spree is winding down. • Exports account for 40%-50% of U.S. industrial machinery shipments. • Export growth is likely to slow over the near-term 27 Copyright © 2009 IHS Global Insight. All Rights Reserved. Much Slower Production Growth Anticipated for Industrial Machinery over the Next Few Years, But Still No Decline Production of Industrial Machinery (Percent change from a year earlier) 40 30 20 10 0 -10 -20 -30 1998 2000 2002 2004 2006 2008 2010 2012 2014 28 Copyright © 2009 IHS Global Insight. All Rights Reserved. Construction Machinery New Orders for Construction Machinery Construction Machinery Unfilled Orders (Millions of Dollars) (Millions of Dollars) 4800 12000 3900 9800 7600 3000 5400 2100 1200 1999 2001 2003 2005 2007 2009 2011 3200 1000 1999 2001 2003 2005 2007 2009 2011 YTD Jan-Aug = Orders +43.5%, Unfilled Orders +45% Copyright © 2009 IHS Global Insight. All Rights Reserved. 29 US Construction Growth by Sector (Percent change, 2005 dollars) 2010 2011 2012 2013 Total Construction -10.9 0.5 0.3 9.5 Residential -4.6 -2.7 5.0 17.4 Commercial -30.6 -5.4 0.6 7.1 Manufacturing -31.8 -14.4 5.2 14.1 Mines & Wells 16.6 25.8 -6.2 -2.4 Health Care -5.7 -4.7 5.8 4.2 -12.8 2.7 -7.4 -3.8 Highways & Streets -1.5 -11.8 -6.8 -1.2 Public Education -7.9 -14.2 -9.7 -3.2 Public Utilities 30 Copyright © 2009 IHS Global Insight. All Rights Reserved. Construction Machinery: Slower growth in the nearterm…faster growth as US market snaps back • New orders for construction machinery have exhibited considerable strength. • Recent pick up in domestic demand tied to dealer and leasing company replacement buying. • U.S. exports of construction and related equipment have staged an impressive comeback since the recession. • Domestic sales growth stabilizes in the near-term and then accelerates in 2013 as construction recovers • Exports will gain additional ground but growth slows in the near-term 31 Copyright © 2009 IHS Global Insight. All Rights Reserved. Farm Machinery Farm Machinery Shipments (Millions of Dollars) 4000 3000 2000 1000 0 1999 2001 2003 YTD Jan-Aug = Shipments +17% Copyright © 2009 IHS Global Insight. All Rights Reserved. 2005 2007 2009 2011 32 When farmers have money they buy equipment U.S. Net Farm Income Canadian Net Farm Income (Billions of dollars) (Millions of Dollars) 110 6000 90 4500 70 3000 50 1500 30 0 1999 2002 2005 2008 2011 2014 2008 2010 2012 2014 2016 33 Copyright © 2009 IHS Global Insight. All Rights Reserved. Farm Machinery: Still going strong for now • U.S. Farm income came in at $79 billion in 2010, an increase of 27%. Healthy demand and lofty prices push farm income to $92 billion in 2011 and $105 billion in 2012 before drifting off to $91 billion by 2016. • U.S. farm tractor and combine sales and production will hold up in the near term...but the farm sector CAPEX cycle is maturing. • Following a sharp falloff in 2009, U.S. exports of farm machinery rose 12% last year and have accelerated in 2011. • Export prospects remain bright, with the Canadian and Latin American markets providing the most support. 34 Copyright © 2009 IHS Global Insight. All Rights Reserved. Much Slower Production Growth Anticipated for OffHighway Equipment over the Next Few Years Production of Agricultural & Construction Machinery (Percent change from a year earlier) 30 20 10 0 -10 -20 -30 -40 1998 2000 2002 Ag Equipment 2004 2006 2008 2010 2014 Construction Equipment Ag equipment index also includes lawn & garden equipment Copyright © 2009 IHS Global Insight. All Rights Reserved. 2012 35 Commercial & Service Equipment (Material Handling Equipment) New Orders for Material Handling Equipment Unfilled Orders for Material Handling Equipment (Millions of Dollars) (Millions of Dollars) 3000 9000 2600 8000 2200 7000 1800 6000 1400 5000 1000 1999 2001 2003 2005 2007 2009 2011 4000 1999 2001 2003 2005 2007 2009 2011 YTD Jan-Aug = Orders +16%, Unfilled Orders +19% 36 Copyright © 2009 IHS Global Insight. All Rights Reserved. Material Handling Equipment: Domestic demand will be hurt by slowdown in manufacturing • New orders for material handling equipment surged 24% last year and have gained additional ground in 2011. • Industrial trucks have led the way but future demand for this equipment will taper off as activity and capital expenditures for manufacturers and wholesale and retail trade weaken. • Leasing has become a big option for many users of equipment during this recovery. • With the recovery in industrial, warehouse, retail, and office construction delayed, the second leg of the recovery in material handling equipment— more spending on big-ticket items—will also be postponed. • The prospects for exports remain bright but growth will slow from the 20%plus rate we have seen in 2010–11. • Asia-Pacific and Latin America remain the most fertile markets for U.S. manufacturers, while European sales will continue to struggle. 37 Copyright © 2009 IHS Global Insight. All Rights Reserved. Much Slower Production Growth is Expected Production of Commercial & Service Machinery (Percent change from a year earlier) 20 10 0 -10 -20 1998 2000 2002 2004 2006 2008 2010 2012 2014 38 Copyright © 2009 IHS Global Insight. All Rights Reserved. Metalworking Machinery New Orders for Metalworking Machinery Metalworking Machinery Unfilled Orders (Millions of Dollars) (Millions of Dollars) 3000 7000 2700 6000 2400 2100 5000 4000 3000 1800 2000 1500 1000 1200 1999 2001 2003 2005 2007 2009 2011 0 1999 2001 2003 2005 2007 2009 2011 YTD Jan-Aug = Orders +10%, Unfilled Orders +37% Copyright © 2009 IHS Global Insight. All Rights Reserved. 39 Slower growth in metalworking industry activity will be reflected in equipment demand Metalworking Industry Orders & Metalworking Machinery Orders (Millions of Dollars) 200000 170000 3000 2600 140000 110000 2200 1800 80000 1999 1400 2001 2003 2005 2007 2009 2011 Metalworking Industry Orders (Left) Metalworking Machinery Orders (Right) 40 Copyright © 2009 IHS Global Insight. All Rights Reserved. Metalworking Machinery: Slower growth ahead • The rebound in metalworking industry activity and pent-up demand has allowed CAPEX programs to proceed to the benefit of U.S. metalworking machinery manufacturers. • Metalworking industry activity and CAPEX in the rest-of-the world— and in developing economies in particular—has also strengthened. • The "soft patch" in the economy is proving softer and longer-lasting, which is not good news for the metalworking industries. • Consumers and businesses are becoming more cautious with their financial resources. At the same time, the prospects for exports have been toned down. • Motor vehicle industry capital spending is expected to provide support, as will the Boeing and Airbus ramp-up of production. 41 Copyright © 2009 IHS Global Insight. All Rights Reserved. Much Slower Growth is Expected for Metalworking Machinery Output Over the Next Few Years Production of Metalworking Machinery (Percent change from a year earlier) 20 10 0 -10 -20 -30 1998 2000 2002 2004 2006 2008 2010 2012 2014 42 Copyright © 2009 IHS Global Insight. All Rights Reserved. Power Generation & Transmission Equipment New Orders for Power Equipment Unfilled Orders for Power Equipment (Millions of Dollars) (Millions of Dollars) 6000 20000 5100 17000 4200 14000 3300 11000 2400 8000 1500 1999 2001 2003 2005 2007 2009 2011 5000 1999 2001 2003 2005 2007 2009 2011 YTD Jan-Aug = Orders +19%, Unfilled Orders +33.5% Copyright © 2009 IHS Global Insight. All Rights Reserved. 43 Generating capacity additions will come slowly Electric Utilities Have Adequate Generating Capacity (Percent, electric utility operating rate) 105 95 85 75 1998 2000 2002 2004 2006 2008 2010 44 Copyright © 2009 IHS Global Insight. All Rights Reserved. Capacity additions remain modest Total Gross Electric Power Generating Capacity Additions (MW) 30000 20000 10000 0 2009 2011 2013 2015 45 Copyright © 2009 IHS Global Insight. All Rights Reserved. Power Equipment: Modest growth ahead • Power equipment manufacturers posted a 10% increase in shipments last year. Business has continued to improve in 2011, with year-to-date shipments up 19% versus a year ago, while new orders are up 33.5% and unfilled orders are up 66%. • There remains little pressure on electric utilities to aggressively boost generating capacity. • New additions for power generating equipment were actually off 19% last year, but should be up over 8% this year and close to 4% in 2012. • Electrical generating capacity should grow over the long-term, but the growth will come in bunches. • • The domestic commercial and industrial markets will not rebound until 2013. • The demand for power equipment in developing economies will expand further as investment in industrial and power sectors continues. Growth in the economies of China, India, Brazil, and other developing nations is expected to taper off. U.S. exports of turbines and generators fall 1.5% last year and this year they are on track to decline 1.0%. 46 Copyright © 2009 IHS Global Insight. All Rights Reserved. The Turbine Industry is on Track to See the Best Growth in Years, Following Two Years of Substantial Decline Production of Turbines & Power Generating Equipment (Percent change from a year earlier) 20 10 0 -10 -20 -30 1998 2000 2002 2004 2006 2008 2010 2012 2014 47 Copyright © 2009 IHS Global Insight. All Rights Reserved. Mining, Gas Field & Oil Field Machinery & Equipment New Orders for Mining, Oilfield and Gas Field Machinery Unfilled Orders for Mining, Oil Field and Gas Field Equipment (Millions of Dollars) (Millions of Dollars) 4000 15000 3200 12000 2400 9000 1600 6000 800 3000 0 1999 2001 2003 2005 2007 2009 2011 0 1999 2001 2003 2005 2007 2009 2011 YTD Jan-Aug = Orders +25%, Unfilled Orders +58% Copyright © 2009 IHS Global Insight. All Rights Reserved. 48 Oil prices/demand will remain favorable for investment…Shale gas gale continues Crude Oil and Natural Gas Prices 120 9 100 8 80 7 60 5 40 4 20 3 2002 2004 2006 2008 2010 2012 2014 2016 Crude Oil WTI(Left scale, dollars/barrel) Natural Gas Henry Hub(Right scale, dollars/mmBtu) 49 Copyright © 2009 IHS Global Insight. All Rights Reserved. Shale gas related investment will continue North American Natural Gas Production Capacity (Billions of cubic feet per day) 82.0 79.5 77.0 74.5 72.0 2010 2011 2012 2013 2014 2015 2016 50 Copyright © 2009 IHS Global Insight. All Rights Reserved. 51 “Tight Oil” Plays in North America Cardium, Viking Bakken, Three Forks Heath Utica Niobrara Mowry Cane Creek Wasatch Green River Marcellus Barnett Monterrey Niobrara Tuscaloosa Granite Wash Bone Spring/Avalon Woodford Spraberry Copyright © 2009 IHS Global Insight. All Rights Reserved. Eagleford 51 52 Tight Oil Leads the Way for US Capacity Growth 11 Yet to Find 10 Biofuels 9 8 Natural Gas Liquids 7 Million Barrels per Day 6 Tight Oil 5 Deepwater Crude Oil 4 3 2 Conventional Onshore and Shallow Water Crude Oil 1 0 2000 2005 2010 Sources: Projection from IHS CERA, historical data from IHS, US Energy Information Administration. Sources: from Note: Condensates areProjection included in crude oil. IHS CERA, historical data from IHS, 10904-4US Energy Information Administra tion. Note: Condensates are included in crude oil. Copyright © 2009 IHS Global Insight. All Rights Reserved. 2015 2020 52 Mining and Oil & Gas Field Machinery: CAPEX projects should continue • Expanding demand and lofty energy/commodity prices have triggered stronger CAPEX programs in the energy and mining industries. • As long as the global economy continues to expand, energy and commodity demand will keep prices high enough to promote additional exploration, development, and production CAPEX programs. • Our current forecast has Dated Brent averaging about $112 per barrel in 2011 and 2012 before rising to $117 in 2013. • On the natural gas front we are seeing a lull in the action as domestic supply has been expanded dramatically in recent years as a result of shale gas projects. • However, North American natural gas productive capacity expands 8% over the four years from 2013 to 2016. 53 Copyright © 2009 IHS Global Insight. All Rights Reserved. Oil/Gas/Mining Machinery Production Is on Track to Increase over 20% in 2011. Growth Then Tapers Off. Production of Oil/Gas/Mining Machinery (Percent change from a year earlier) 40 30 20 10 0 -10 -20 -30 1998 2000 2002 2004 2006 2008 2010 2012 2014 54 Copyright © 2009 IHS Global Insight. All Rights Reserved. Replacement demand will drive the next freight car buying cycle North American Freight Car Fleet Age Profile Age Profile - % 45 37 29 21 13 5 0-5 6-10 11-15 16-20 21-25 26+ Avg. Age 55 Copyright © 2009 IHS Global Insight. All Rights Reserved. Railroad Equipment: Another buying cycle underway • Freight car builders have survived yet another mega downturn. Peak to trough, deliveries fell from 74,729 units in 2006 to their low in 2010, a drop of 78%. • In the previous cycles of 1998–2002 and 1979–1983, deliveries tumbled 76% and 93%, respectively. • New orders have strengthened considerably this year, aided by some multiyear equipment buys. The freight car backlog reached 57,308 units at midyear, the biggest backlog since the second quarter of 2008. • Freight car builders have enough business on the books to keep them happy into 2012. • However, rail traffic is moderating along with the overall economy, putting the freight car recovery at risk. • Deliveries are pegged at 47,799 units in 2012, 59,015 units in 2013, 65,790 units in 2014, 61,925 units in 2015, and 56,474 units in 2016. 56 Copyright © 2009 IHS Global Insight. All Rights Reserved. New Orders for Nondefense Aircraft New Orders for Nondefense Aircraft Unfilled Orders for Nondefense Aircraft (Millions of Dollars) (Millions of Dollars) 30000 450000 25000 20000 360000 15000 270000 10000 180000 5000 0 -5000 1999 2001 2003 2005 2007 2009 2011 90000 0 1999 2001 2003 2005 2007 2009 2011 YTD Jan-Aug = Orders +46%, Unfilled Orders +8% Copyright © 2009 IHS Global Insight. All Rights Reserved. 57 Airbus is ahead of Boeing when it comes to orders this year…but both have huge backlogs. New Aircraft Orders Improving 1,500 1,000 500 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Boeing Airbus *Through August 58 Copyright © 2009 IHS Global Insight. All Rights Reserved. Commercial air transport production heads higher Commercial Aircraft Production Set to Increase (World real production revenues, 2007=100) 200 150 100 50 0 2007 2008 2009 2010 2011 Source: IHS Jane's 2012 2013 2014 59 Copyright © 2009 IHS Global Insight. All Rights Reserved. Commercial market in detail 60 Copyright © 2009 IHS Global Insight. All Rights Reserved. Backlogs will fuel near term production increases 61 Copyright © 2009 IHS Global Insight. All Rights Reserved. Aerospace Outlook: Commercial market takes off…defense eventually slows down • Boeing and Airbus backlogs contain six to seven years of production at current levels. • Significant production increases were announced late in 2010 and should stretch through 2014. • Long-term demand will be fueled by fleet growth in developing markets…and need to replace aging and less fuel efficient aircraft in developed markets. • Most programs will see higher production rates in 2011, with more following in subsequent years. Global production will rise near 18% in 2011. • Some signs of life have emerged in the business jet/general aviation markets. • Aftermarket and service business for business jet and commercial airplane has improved. • Monies from base and supplementary defense budgets are propping up defense contractor activity…but withdrawal from Iraq and Afghanistan and budget woes will pressure military spending. 62 Copyright © 2009 IHS Global Insight. All Rights Reserved. The Key Gear Markets Bottom Line • Despite slowing substantially, manufacturing growth will outpace GDP growth in the years ahead. • However, it will take some time for manufacturing to get back to pre-recession levels. • The capital goods industries will continue to fuel the economic recovery in 2012 and 2013. Replacement and pent-up demand remain supportive...but Corporate America is becoming more cautious. • For many capital goods manufacturers backlogs are currently very high and should help carry production into 2012. • The long order pipeline for aircraft should result in double-digit growth for the industry over the next three years. • • The oil and gas sectors will continue to be a growing user of capital equipment. Capital good exports will continue to expand but growth is expected to slow. 63 Copyright © 2009 IHS Global Insight. All Rights Reserved. The US Gear Manufacturing Outlook A Weaker Economy Will Take A Toll Metal Prices to Flatten Out As Global Demand Growth Slows • Global economic conditions look considerably less rosy than originally expected. Although demand from China should still increase, its growth should slow significantly. • The United States and Europe are on the back side of a manufacturing recovery, and demand for capital equipment should increase minimally. • Primary metal operating rates are in the mid-to-lower-70% area and are not expected to increase much over the next few years--this should keep price increases to a minimum. • Also expect little movement in stainless steel prices over the next couple of years. 65 Copyright © 2009 IHS Global Insight. All Rights Reserved. Expect Metal Prices to Stabilize Ferrous Metal Prices Nonferrous Metal Prices (Percent change from a year earlier) (Percent change from a year earlier) 70 60 50 40 30 20 10 0 -10 -20 -30 -40 2001 2003 2005 2007 2009 Steel, Cold Finished Special Bar Grade 1018 2011 2013 2015 Steel, Scrap 70 60 50 40 30 20 10 0 -10 -20 -30 -40 2001 2003 2005 Aluminum 2007 2009 2011 2013 2015 Titanium 66 Copyright © 2009 IHS Global Insight. All Rights Reserved. Summary: Key Gear Industry Markets (Percent change) 2010 2011 2012 2013 Industrial Machinery 27.4 16.3 4.7 3.4 Construction Equipment 10.6 4.4 2.3 5.4 Farm Machinery 9.2 0.0 4.4 2.9 Commercial & Service Equip 3.4 11.9 1.4 0.8 10.6 14.1 3.9 1.8 -19.1 8.5 3.6 0.5 Mining, Oil & Gas Field Equip 4.6 24.5 8.4 4.8 Shipbuilding & Offshore Rigs 0.5 1.3 -4.3 -4.8 Machine & Other Tools Mfg Turbines & Power Trans Equip 67 Copyright © 2009 IHS Global Insight. All Rights Reserved. Summary: Key Gear Industry Markets (Continued) (Percent change) Railroad Rolling Equipment Aerospace 2010 2011 2012 2013 -10.5 60.0 25.0 12.0 -2.3 10.0 17.9 16.7 68 Copyright © 2009 IHS Global Insight. All Rights Reserved. U.S. Gear Bookings, Shipments, Demand, Exports & Imports (Million dollars) Bookings Percent Change Shipments Percent Change Domestic Demand Percent Change Exports Percent Change Imports Percent Change 2010 2011F 2012F 2013F 2,970.7 4,157.8 3,793.7 3,529.7 66.9 40.0 -8.8 -7.0 2,778.7 3,613.6 3,791.5 3,736.8 24.1 30.0 4.9 -1.4 3,700.7 4,885.1 5,101.2 4,988.2 17.4 32.0 4.4 -2.2 1,269.9 1,551.2 1,720.7 1,813.5 27.6 22.2 10.9 5.4 2,192.0 2,822.7 3,030.4 3064.8 14.8 28.8 7.4 1.1 69 Copyright © 2009 IHS Global Insight. All Rights Reserved. This Year is On Track to be a Record, But the Next Few Years Will be More Difficult U.S. Gear Bookings & Shipments 5500 Bookings Shipments Demand 5000 Million Dollars 4500 4000 3500 3000 2500 2000 1500 1998 2000 2002 2004 2006 2008 2010 2012 2014 70 Copyright © 2009 IHS Global Insight. All Rights Reserved. The U.S. Has Increased its International Competitiveness in Gear Production U.S. Gear Imports & Exports 3500 3000 Exports Million Dollars 2500 Imports 2000 1500 1000 500 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 71 Copyright © 2009 IHS Global Insight. All Rights Reserved. Current U.S. Gear Export Partners (Percent Market Share) Exports Canada 26% Mexico 13% Brazil 9% China 8% Belgium 7% Germany 4% Australia 4% 72 Copyright © 2009 IHS Global Insight. All Rights Reserved. Current U.S. Gear Import Partners (Percent Market Share) Imports Germany 22% China 15% Japan 14% Italy 12% Canada 5% Mexico 5% Belgium 4% 73 Copyright © 2009 IHS Global Insight. All Rights Reserved. The Gear Markets Bottom Line • This is an excellent year for traditional capital equipment overall as replacement and pentup demand remain strong despite little interest in capacity expansion. This year should be a record in terms of bookings, shipments, demand and exports for gears. • U.S. gear manufacturers are also much more globally competitive. Import’s market share of consumption has declined. Imports this year remain well below the record. • The economy and manufacturing will be horribly slow during 2012 and also sluggish in 2013. Look for a decline in gear bookings as businesses soften their focus on CAPEX. Shipments should still be slightly positive in 2012 because unfilled orders are high. • Export opportunities still exist for non European countries. Domestic business opportunities for material handling equipment, mining, oil & gas field equipment, railroad rolling stock, and aerospace should remain strong, but growth should be slower than this year. • The next major upturn for the gear industry should start toward the end of 2013 going into 2014 and beyond. 74 Copyright © 2009 IHS Global Insight. All Rights Reserved. Thank you! For more information on these slides and IHS Global Insight Industry Service, please contact your IHS Global Insight Account Manager or the following members of the Industry Practices team: Tom Runiewicz -- [email protected] 75 Copyright © 2009 IHS Global Insight. All Rights Reserved.