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SPECIAL 2020 FORECAST ISSUE
A LOOK AT THE YEAR AHEAD - FEATURING: 2020 OUTLOOK: THE YEAR OF LIVING DANGEROUSLY (ECONOMICALLY SPEAKING) BY DR. CHRIS KUEHL PAGE 6
WHAT WILL DRIVE U.S. MANUFACTURING PERFORMANCE IN 2020 BY CLIFF WALDMAN PAGE 8
THE ISM SEMI-ANNUAL FORECAST PAGE 10
METALS OUTLOOK PAGE 24
NOVEMBER ISM PMI: 48.1%
Released December 2nd -The Full Executive Summary Report On Business - Page 20
presents
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Manufacturing Outlook / December 2019
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TABLE OF CONTENTS
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PUBLISHER’S STATEMENT
COMMERCIAL SUPERSONIC FLIGHT IS READY FOR A COMEBACK
A word from our publisher
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by Craig Rovere
2020 OUTLOOK
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The Year of Living Dangerously (Economically Speaking) by Dr. Chris Kuehl
Auto industry news
8 WHAT WILL DRIVE US MANUFACTURING PERFORMANCE by Cliff Waldman
10 ISM SEMI ANNUAL FORECAST
A look at the year ahead
12 MANUFACTURING PREDICTIONS 2020
by T.R. Cutler
14 MANUFACTURING OUTLOOK A global look at manufacturing
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AUTOMOTIVE OUTLOOK
21 DRAKO GTE EV Supercar puts Tesla on notice
34 ISSUES OUTLOOK Issues around the globe
36 ENERGY OUTLOOK Energy and the environment
38 GLOBAL PMI OUTLOOK by Norbert Ore
39 ASIA OUTLOOK
THE CREDIT MANAGER’S OUTLOOK
China and more
by Dr. Chris Kuehl
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18 NORTH AMERICAN OUTLOOK Manufacturing in the US, Canada & Mexico
EUROZONE OUTLOOK A look at Europe
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Brazil in the spotlight
ISM MANUFACTURING REPORT ON BUSINESS
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ORGANIZATIONAL VALUES ONLY WORK WHEN TIED TO BEHAVIORS
METALS OUTLOOK The cost, making and treating of metals
28 AEROSPACE OUTLOOK What’s up in aerospace
SOUTH AMERICA OUTLOOK
by Andrea (Belk) Olson, MSC
PUBLISHERS STATEMENT
PUBLISHER’S STATEMENT What does 2020 look like for manufacturing? Your answers are in this issue of Manufacturing Outlook! Throughout 2019, we monitored, among many other things, the state of the U.S. economy, and despite all the political turmoil in D.C., the U.S. had a good GDP year. As we look forward to 2020, we have asked executives at manufacturers, the ISM, Cliff Waldman, host of Manufacturing Matters with Cliff Waldman and a respected economist on our network, Chris Kuehl, one of our top correspondent contributors, Norbert Ore, another of our contributing correspondents, and other thought leaders, what 2020 looks like, barring any unforeseen act of terrorism or God. The consensus is another growth year for the U.S. with a GDP in the range of +1.6 to +2.1 percent. In other words, recession is not on the radar screen. In this issue, you can read articles by Cliff Waldman, Chris Kuehl, Tom Cutler, Norbert Ore, and the ISM that have all looked at 2020 and concluded that modest growth appears likely, and perhaps even reliable. Two unknown outcomes will remain up in the air late into 2020 – the status of the trade war, and what party and president will hold sway in D.C. for 2021-2024. One of the biggest unresolved issues in manufacturing is the Skills Gap, which will be resolved over time by a combination of employees and robots and/or automation. The early years of robots bolted to the floor and working in cages are behind us. Autonomous robots that move or can be moved from place to place, and autonomous material handling carts and forklift tugs is the here, now and near future. Regarding the Skills Gap, the U.S. graduates almost 4 million high school students every year, has veterans able to work, many incarcerated, low-level offenders that need to be released, women underrepresented in the workforce, and other people resources that far exceeds the number of baby-boomers retiring every day, that will have to be trained by the hiring companies. Government training programs are not the answer for a myriad of reasons too numerous to expound upon here. The new normal is that manufacturers have to take on the responsibility and risks of employee training, just like any other input in the manufacturing matrix. Some of the costs may be mitigated by state or federal grants, cooperative relationships with trade schools, colleges, and universities, and liaisons with industry associations, unlike previous decades where manufacturers could operate easily without these extended relationships. And although unemployment is at a 50-year low as of this writing, the labor participation rate of all able-bodied adults 18 years and older is only 2/3’s of the total available labor pool. That 1/3 sit on the sidelines is an enigma wrapped in a mystery. If some bright writer wants to explain that one to us, please send in your article! Manufacturing Outlook, as well as Manufacturing Talk Radio, is always looking for writers to cover the coolest new tech, or commonsense solutions from the shop floor to the C-Suite, and guests to interview about manufacturing from inside the plant or warehouse perspective. It is an exciting industry seeking innovation and we trust you will enjoy how it looks for 2020 as you read through this issue. Lewis A. Weiss Publisher Contact laweiss@mfgtalkradio.com or text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast. Lewis A Weiss, Publisher Manufacturing Outlook / December 2019
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2020 OUTLOOK
2020 OUTLOOK THE YEAR OF LIVING
DANGEROUSLY (ECONOMICALLY SPEAKING) BY DR. CHRISTOPHER KUEHL, MANAGING DIRECTOR OF ARMADA CORPORATE INTELLIGENCE
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Manufacturing Outlook / December 2019
2020 OUTLOOK Just in case you hadn’t noticed by this time – 2020 is an election year. Traditionally the state of the economy plays a significant role in the electoral outcome – hence the phrase “It’s the economy, stupid”. Next year the phrase may alter a bit to “it’s the stupid economy”. There is a great deal of uncertainty about what 2020 will bring as there are unusual forces and actions at work already and they will play an even bigger role next year – especially for manufacturers. There are four critical areas to keep an eye on. The first and perhaps the most important is the potential for a real recession. The second is the impact of global trade wars and what that is doing to the global economy. The third issue is the attitude of the consumer as this has been the factor that has thus far sustained growth in the US and finally there is the long term issue of labor shortage – perhaps the most difficult challenge manufacturers are going to face for the coming year and decade.
Recession is not likely in 2020 – let’s get that out of the way immediately. Recession is not likely in 2020 – let’s get that out of the way immediately. The ingredients are just not there. There has been no inflationary pressure causing the Fed to raise interest rates to control it. There has been solid employment growth and confidence in the consumer sector as well as among investors. What is likely is a slowdown to growth of between 1.7% and 2.1%. The US-China trade war has been vexing and confusing as it seems there is no strategy behind the starts and stops. The real issue as far as global trade is concerned is that this is only one of the trade confrontations taking place and all of them have combined to take the export sector to record lows. In addition to the confrontation between the US and China there is Brexit and its impact on the UK and Europe, a trade war between Japan and South Korea, one between China and India, another between Brazil and Argentina and a whole host of economic sanctions that have affected Russia, Iran, Venezuela, and others. All of this has distorted trade and created global slowdown to less than 3.5% growth.
The US consumer has been sustaining the US economy for the last year but there are some signs of fatigue. The overall attitude remains buoyant as holiday sales attest but there are signs of caution as well. The savings rate is double what it usually is and big-ticket purchases are down. As long as the unemployment rate remains low the consumer will stay reasonably confident but election years tend to depress consumers – especially at the end. When the votes are counted in November there will be a winner and a loser and half the country will be angry and upset over that outcome. Finally, there is the issue of labor availability and nothing suggests it will get any easier to find the needed workforce next year. Every time the manufacturers are asked to describe their biggest problem, they cite the lack of skilled workers. Companies can’t expand because they can’t find workers. Many are trying to hire people they can train but too often these new hires don’t work out or they get the training and move on to some other employer. The education system has been failing to deliver these skilled workers for years and government policies towards immigration have all but eliminated the recruitment of skilled workers from other countries. What’s worse is that nobody in politics even discusses the problem. The sense is that 2020 will be a year when some of the nagging issues reach a critical stage. The trade wars can’t continue in limbo as they have been. Consumers will have to decide if they are confident about the future or not. The political wrangles will come to a merciful end (at least for a day or two). This looks to be a good year to be more cautious and careful than has been the case in the last few. About the author:
Dr. Christopher Kuehl (PhD) is a Managing Director of Armada Corporate Intelligence and one of the co-founders of the company in 1999. He has been Armada’s economic analyst and has worked with a wide variety of private clients and professional associations in the last ten years. He is the Chief Economist for the National Association for Credit Management and is on the Board of Advisors for their global division – Finance, Credit and International Business. He prepares NACM’s monthly Credit Managers Index.
Manufacturing Outlook / December 2019
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WHAT WILL DRIVE US MANUFACTURING PERFORMANCE IN 2020?
What Will Drive US Manufacturing Performance in 2020? by Cliff Waldman
If I had to pick two numbers that summarize and cap a tumultuous and sometimes downright strange 2019, they would be 48.1 and 266,000. Both reflect activity for November. Both were met with sizable reactions from financial markets. The former is the Purchasing Managers Index. Being below 50, it foreshadows short-term contraction in the U.S. manufacturing sector. The latter is the surprisingly strong number of jobs created in November. Are both of these really part of the same story? Economic data are commonly mixed. Business cycle fluctuations are sloppy and uneven, different sectors respond to different influences. But 2019 has been a real head scratcher. While the global economy sags, while sagging global growth and trade policy uncertainty exacerbate the long-standing weakness in US capital investment, the U.S. unemployment rate is at a half-century low and consumers are celebrating with their wallets, albeit at an uneven rate. This picture isn’t mixed, it’s schizoid. So how to process such imbalanced activity into a coherent forecast for U.S. manufacturing growth for 2020? Is strength going to overwhelm weakness or is weakness going to overwhelm strength? The post-financial crisis period has been difficult
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Manufacturing Outlook / December 2019
and volatile for U.S. industry. Remarkably, the U.S. manufacturing sector has yet to fully regain the output that was lost in the Great Recession. Nonetheless, recent data should raise heightened alarm about the manufacturing outlook. U.S. manufacturing output was in contraction during the first half of 2019. While there was a very modest rebound during the third quarter, the Institute for Supply Management Purchasing Managers’ Index has signaled contraction not just in November 2019 but in the four months between August 2019 and November 2019. The backdrop for recent factory sector weakness is clear. Between 2017 and 2019 global economic growth slowed significantly, a big problem for a US manufacturing sector that has been selling an increasing share of its output outside of U.S. borders. An elevated dollar further exacerbates export troubles for U.S. manufacturers challenged by world malaise. While not, by any means, the full explanation for global weakness, it is no exaggeration to assert that the U.S.-China trade war is generating the highest level of uncertainty of any U.S. federal economic policy in living memory. Tariff impacts are complex. Tariffs can cause changes in demand, changes in
WHAT WILL DRIVE US MANUFACTURING PERFORMANCE IN 2020?
suppliers and changes in the configuration of supply chains. To make things even harder, the impacts are industry-specific. Broadly speaking, I agree with most analysts who assert that the biggest shortterm impact is not from the tariffs themselves but from the uncertainty surrounding tariff policy, a negative for the animal spirits of business that drives equipment investment. In sum, the short-term manufacturing growth outlook is challenged by a chaotic trade battle, a slowing global economy, and an elevated dollar. Thus, these are the key questions for the 2020 U.S. manufacturing outlook: 1. W ill trade tensions come to a resting point or will they persist? 2. Will trade tensions and weakness in key regions push the global economy to the brink of an outright recession? 3. W ill fiscal policy around the world step in to support economic activity given that monetary policy in many regions may be reaching the limits of its growth-supporting capabilities? 4. Will US consumer spending be strong enough to keep the U.S. economy growing at a pace that is consistent with moderate job growth?
5. W ill U.S. capital spending weakness persist and exacerbate the slowdown in job growth and the weakness in U.S. manufacturing performance? 6. W ill the U.S. election materially impact the capital spending outlook? 7. W ill the US dollar trend downwards if the Federal Reserve maintains an easing bias? One thing is for sure: With sizable uncertainty in the broad U.S. and global economic pictures and high drama in the political and policy arenas, 2020 is sure to be an interesting and consequential year for U.S. manufacturing!
About the author: Cliff Waldman is the CEO of New World Economics, a research and consulting firm in Arlington, VA. that specializes in contract research in the areas of manufacturing, small business, and frontier markets. Prior to founding New World Economics, Cliff was Chief Economist at the Manufacturers Alliance for Productivity and Innovation (MAPI), a trade and research firm for U.S. manufacturers. Manufacturing Outlook / December 2019
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ISM SEMI-ANNUAL FORECAST
THE ISM SEMI-ANNUAL FORECAST
®
ISM® REPORTS ECONOMIC GROWTH TO CONTINUE IN 2020
Manufacturing Growth Expected in 2020 Revenue to Increase 4.8% Capital Expenditures to Decrease 2.1% Capacity Utilization Currently at 83.7% Non-Manufacturing Growth Projected in 2020 Revenue to Increase 3.4% Capital Expenditures to Increase 1.3% Capacity Utilization Currently at 86% (Tempe, Arizona) — Economic growth in the United States will continue in 2020, say the nation’s purchasing and supply management executives in the December 2019 Semiannual Economic Forecast. Expectations are for a continuation of the growth that began in mid-2009, as indicated in the monthly ISM® Report On Business®. The manufacturing sector is optimistic about growth in 2020, with revenues expected to increase in all 18 manufacturing industries, and the nonmanufacturing sector also indicates that 17 of its industries will see higher revenues. Capital expenditures are expected to decrease by 2.1 percent in the manufacturing sector (after 6.4-percent growth in 2019) and increase by 3.4 percent in the non-manufacturing sector. Manufacturing expects that its employment base
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Manufacturing Outlook / December 2019
will grow slightly, by 0.1 percent, while the outlook for the next 12 months is predominately growth oriented. These projections are part of the forecast issued by the Business Survey Committee of Institute for Supply Management® (ISM®). The forecast was released today by Timothy R. Fiore, CPSM, C.P.M, Chair of the ISM Manufacturing Business Survey Committee, and by Anthony S. Nieves, CPSM, C.P.M., A.P.P, CFPM, Chair of the ISM NonManufacturing Business Survey Committee. Manufacturing Summary Expectations for 2020 are positive, as 58.1 percent of survey respondents expect revenues to be greater in 2020 than in 2019. The panel of purchasing and supply executives expects a 4.8-percent net increase in overall revenues for 2020, compared to a 1.9-percent increase predicted for 2019 over 2018 revenues. All 18 manufacturing industries expect revenue improvement in 2020 over 2019, listed in order: Fabricated Metal Products; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Paper Products; Furniture & Related Products; Chemical Products; Wood Products;
ISM SEMI-ANNUAL FORECAST Computer & Electronic Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Primary Metals; Printing & Related Support Activities; Textile Mills; Petroleum & Coal Products; and Nonmetallic Mineral Products. “Manufacturing purchasing and supply executives expect to see growth in 2020. They are optimistic about their overall business prospects for the first half of 2020, with business continuing to expand through the second half of 2020. Manufacturing experienced eight consecutive months of growth from December 2018 through July 2019. However, manufacturing contracted during the period from August 2019 through November 2019. This resulted in an average PMI® of 51.8 percent, as compared to 59.2 percent for the 12 months ending November 2018, as reported in the monthly Manufacturing ISM Report On Business®. Respondents expect raw materials pricing pressures in 2020 to increase and expect profit margins to improve in 2020 over 2019. Manufacturers are also predicting growth in both exports and imports in 2020,” says Fiore. In the manufacturing sector, respondents report operating at 83.7 percent of their normal capacity, down 0.5 percentage point from the 84.2 percent reported in May 2019. Purchasing and supply executives predict that capital expenditures will decrease by 2.1 percent in 2020 over 2019, compared to the 6.4-percent increase reported for 2019 over 2018. Manufacturers expect employment in the sector to grow by 0.1 percent in 2020 relative to December 2019 levels, while labor and benefit costs are expected to increase an average of 0.7 percent in 2020. Respondents also expect the U.S. dollar to strengthen against all seven currencies of major trading partners in 2020, as was the case in 2019. The panel predicts the prices paid for raw materials will increase by 0.4 percent during the first four months of 2020, with an overall increase of 1.1 percent for 2020. This compares to a reported 0.7 percent increase in raw materials prices for 2019 compared with 2018. Special questions were asked of our manufacturing panel. See end of report.
Non-Manufacturing Summary
Fifty percent of non-manufacturing supply management executives expect their 2020 revenues to be greater than in 2019. They expect a 3.4-percent net increase in overall revenues for 2020 compared to a 4.4-percent increase reported for 2019 over 2018 revenues. The 17 industries expecting increases in revenues in 2020 — listed in order of percentage increase — are: Management of Companies & Support Services; Mining; Professional, Scientific & Technical Services; Wholesale Trade; Arts, Entertainment & Recreation; Other Services; Health Care & Social Assistance; Educational Services; Utilities; Information; Accommodation & Food Services; Retail Trade; Finance & Insurance; Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; and Public Administration. “Non-manufacturing supply managers report operating at 86 percent of their normal capacity, lower than the 89 percent reported in May 2019. They are optimistic about continued growth in the first half of 2020 compared to the second half of 2019, with a projected decrease in growth rate for capital reinvestment. They forecast that their capacity to produce products and provide services will rise by 3.6 percent during 2020, and capital expenditures will increase by 1.3 percent from 2019 levels. Non-manufacturers also predict their employment will increase by 1.2 percent during 2020,” says Nieves. Respondents in non-manufacturing industries expect the prices they pay for materials and services to increase by 1.9 percent during 2020. They also forecast that their overall labor and benefit costs will increase 1.8 percent. Profit margins are reported to have decreased in the second and third quarters of 2019, and respondents expect them to increase between now and May 2020. CLICK HERE for the full report Manufacturing Outlook / December 2019
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MANUFACTURING PREDICTIONS 2020
Manufacturing Predictions 2020 by Thomas R. Cutler
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Manufacturing Outlook / December 2019
MANUFACTURING PREDICTIONS 2020 Manufacturers big and small experimented with artificial intelligence or machine learning in 2019. Some of the successes and an equal number of failures point to the fact that most manufacturers are still at very early stages of IIoT (Industrial Internet of Things) machine learning, especially in business applications. 2020 machine learning will be more clearly explained with broader analytics and become better-defined with value creation. Even the small manufacturers will look for access with connected overall analytic strategies and transformation optimizing. 2020 analytics quality and value metrics will become the mainstream KPIs to guide future analytics, AI (Artificial Intelligence) development, and technology investment. RPA (Robotics Process Automation) and Cognitive Process Mining will become even more important for both back office accounting and functions (sales, marketing, product development) to drive more efficient process execution as well as optimizing; totally changing how these processes will function in the future.
The 2020 buzz of Pricing Optimization, CPQ (Configure Price Quote), Digital Transformation, and Visual Commerce will all be driven by the D2C (Direct to Consumer) channel. Only when manufacturers leverage both objective data and analytics-driven insights, concurrent with human intuition will the promise of these technologies be realized. No longer can industry rely on tribal knowledge and a hunch. 2020 and beyond is a human data-driven process driving the best of lean manufacturing principles and eliminating waste and speculation. About the author:
Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 20th year. Cutler is the founder of the Manufacturing Media Consortium including more than 7000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. Cutler can be contacted at trcutler@trcutlerinc.com and followed on Twitter @ThomasRCutler.
Manufacturing Outlook / December 2019
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MANUFACTURING OUTLOOK
DECEMBER 2019
MANUFACTURING OUTLOOK by ROYCE LOWE
GLOBAL MANUFACTURING BACK INTO EXPANSION. THE ISM PMI ROLLS BACK SLIGHTLY AGAIN. CHINA SHOWS FURTHER SLIGHT IMPROVEMENT. EUROPE STILL STRUGGLING. Things are still in a state of flux in global manufacturing and in world trade. The U.S.-CanadaMexico trade agreement is still not settled, nor the U.S.-China trade deal sewn up. The Global PMI did, however, go into expansion in November. The BLS jobs report for November shows total nonfarm employment increased in November by 266,000 jobs. There were notable gains in health care, professional and technical services, and transportation and warehousing. There were job losses in mining. Manufacturing saw a gain of 54,000 jobs, following a fall of 43,000 due to strike in October; recovered in November, with 41,000 of these in motor vehicles and parts. Unemployment again touched 3.5%, the 50-year low.
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Manufacturing Outlook / December 2019
The Bureau of Economic Analysis recently released its ‘second’ estimate for the annual rate of real GDP growth in the third quarter of 2019, putting it at 2.1 percent, or 0.2 percent above the ‘advance’ estimate. The figure for the second quarter of 2019 was 2.0 percent. The ISM PMI figure for U.S. manufacturing eased back slightly to 48.1 percent in November from 48.3 percent in October, representing its fourth consecutive month in contraction. The overall economy grew for the 127th consecutive month, the longest economic expansion in U.S. history since such records have been kept. IHS Markit’s remarks on the U.S. were again quite optimistic, referring to a November PMI at a sevenmonth high: 52.6 from 51.3 in October - amid a stronger upturn in new orders, with production and new order growth rates improving to sevenmonth highs. November showed the fastest
MANUFACTURING OUTLOOK increase in employment since March, but business confidence remains subdued. Both domestic and export demand is strengthening. November saw the strongest improvement in the health of the manufacturing sector since April. Total light vehicle sales, at an adjusted annualized rate of 17.5 million in November, slightly better than the 17.4 million a year ago, according to LMC Automotive and J.D. Power. Light vehicle sales in Canada in November were off - very slightly - for the 21st consecutive month. Sales were 144,476 units, down 0.3 percent year-over-year. THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Consumer Prices, and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy.
There continues to be signs in some European countries of an economic recession, but not in the U.S. Although manufacturing has shown contraction for four consecutive months, the Institute for Supply Management does not indicate in its monthly reports that manufacturing is in recession, technical or otherwise. Neither does IHS Markit report a potential recession. If fact, the ISM notes that the PMI (Purchasing Manager’s Index) would have to hover in the low 40’s for 6 months for such an event to be definitive. The outlook for 2020 is a subdued GDP range between 1.5% to 2.1% quarter-by-quarter, which is positive territory for the year.
The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter’s annual rate. The consumer price increases represent year-over-year changes. The unemployment figures, %, are for the month as noted. It is unclear where China’s economy is at. Boots on the ground indicate that business is suffering, and in some sectors – badly, so their GDP, at 6.1%, may be out of balance with other GDP reporting schema. Their ‘6’ may be our ‘0’ point. Manufacturing Outlook / December 2019
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CREDIT MANAGER’S OUTLOOK
CREDIT MANAGERS’ OUTLOOK by DR. CHRISTOPHER KUEHL MANAGING DIRECTOR OF ARMADA CORPORATE INTELLIGENCE THIS REPORT REPRINTED COURTESY OF THE NATIONAL ASSOCIATION OF CREDIT MANAGERS (NACM.ORG) WHERE MORE IN-DEPTH INFORMATION CAN BE FOUND.
Combined Sectors The data this month is more than a little interesting and encouraging. It is the second month in a row for a positive trend in the overall Credit Managers’ Index (CMI); there have been gains in both manufacturing and service. This gain is more impressive given the fact that many of the other economic indicators have been trending in a negative direction. “The Purchasing Managers’ Index has been in contraction territory for the past three months, however, the latest new orders index started to come back towards expansion territory,” said NACM Economist Chris Kuehl, Ph.D. “Most of the recent indicators have shown increased caution among those in the business community.
in August, but headed in the right direction and back above 60. The new credit applications numbers also returned to the 60s with a score of 61.2 compared to 59 in October. The dollar collections numbers fell from 62.1 to 59.2—a little unexpected. “There has been some evidence that companies are trying to work their credit numbers down a little in anticipation of a tougher year in 2020,” said Kuehl. “Dollar collections would be expected to be up more than they are.” The reading for amount of credit extended improved significantly from 61.6 to 64.3, the highest point reached since May of this year. He added, “There are obviously those still buying and still accessing credit in order to do so.”
That seems to be the watchword of late. The Fed has seen a decline in business borrowing and capital expenditures have been trending down along with capacity utilization numbers.” He explained that the CMI is the current ray of economic sunshine. “This is important given the tendency for the CMI to predict the future a little more accurately than many other surveys.” The overall score improved from 54.6 to 55.5, marking the highest point reached since May of this year when it stood at 55.7. The index of favorable factors rose from 60.1 to 61.6, taking the numbers back to levels seen in August. The index of unfavorable factors improved as well (50.9 to 51.5). That is higher than it has been in well over two years—in February it hit 51. The breakdown of the categories suggests some interesting trends. The sales score ramped up very nicely from 57.9 to 61.6. It was not quite as robust as the 64.4 notched
The rejections of credit applications showed some decline, but still managed to remain in the expansion zone (a scored above 50) with a reading of 51.3 compared to 52.1 in October. Kuehl said that for the past year, this category has been strong with no time spent in the contraction zone. The accounts placed for collection remained in contraction territory but improved slightly from the month prior. It was sitting at 49.1 and is now at 49.8—an incremental move, but one that is in the right direction. The disputes category moved back into the expansion zone with a reading of 50.3 after an October number of 48.1. The dollar amount beyond terms reading was very nearly the same as it had been in October, but there was a slight improvement as it went from 52 to 52.6. He noted that this is another of the indicators that seems to show increased worry about the coming year. Companies seem to be trying to get current
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Manufacturing Outlook / December 2019
CREDIT MANAGERS’ OUTLOOK with their credit so they are not taking that burden with them into the new year. The reading for dollar amount of customer deductions also improved nicely with a reading of 51.4 compared to the 50.9 in October. The data on filings for bankruptcies trended in a positive direction as well with a reading of 53.5—nearly identical to October’s 53.4.
“This month marks the first time that five of the six unfavorable readings have been in expansion territory in nearly three years,” said Kuehl. “The only category in contraction now is accounts placed for collection. It is unlikely this signals a new period of rapid growth for the economy, but it does reduce the potential for a serious recession.” Manufacturing Sector As for manufacturing in the U.S., Kuehl noted that by most accounts the sector has been struggling, and for a variety of reasons. The most pressing of late has been the impact of the trade war with China. There has been a challenge getting the parts and materials needed from China. The slowdown in the Chinese economy has also affected those nations that traditionally sell to the Chinese—they now can’t buy as much from the U.S. as they once did. The worker shortage has also played a major role and most of the manufacturing data has been troubled— everything from three months of the Purchasing Managers’ Index in contraction territory to the reduction in industrial production numbers, durable goods orders, capacity utilization numbers and so on. The fact the CMI is trending in a positive direction is a welcome surprise. The combined score for the manufacturing sector
went from 53.9 to 54.5. That takes the numbers back to the levels seen in August. The readings have been at this level most of the year, but had slipped a bit in October. The index of favorable factors tracked up a bit from what they had been in October. The reading is now 59.7 and was at 59.1. Much of the year has been showing readings above 60, but they had started to fade a little at the end of summer. The index of unfavorable factors improved over the October readings with a 51.1 compared to 50.5 last month. The sales numbers broke back into the 60s with a reading of 60.7 from 56.7 in October. The new credit applications reading stayed very close to the October reading with a 59.8 compared to the previous 59.2. There was a slight decline in dollar collections as the November reading was 56.8 compared to the 58.7 noted in October. These are still very solid and healthy levels and on par with the bulk of the last year. The amount of credit extended stayed in the same spot as last month— at 61.6. The rejections of credit applications fell a little, but remained comfortably in the expansion zone with a reading of 51.6 compared to 52.1 notched in October. The accounts placed for collection stayed very close to last month’s readings and just short of breaking back into expansion (49.3 to 49.4). The disputes reading also tracked in a more positive direction, but remains in contraction territory with a reading of 49.6 compared to the 46.7 in October. The dollar amount beyond terms data was also very close to the numbers from October. The reading last month was 52 and this month it is 52.1. There was a bit of a drop in the dollar amount of customer deductions from last month as it slid from 51.1 to 50.8. The reading for filings for bankruptcies trended back to healthier levels with a 53 compared to the 51.7 previously. The last time bankruptcy data was at 53 was in July. “The point is the CMI data is contradicting some of the gloom and doom story that has been building in the manufacturing sector,” Kuehl said. “The inhibitions have been real enough, but there continues to be expansion tied to steady consumer demand.” Manufacturing Outlook / December 2019
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NORTH AMERICAN OUTLOOK
DECEMBER 2019
NORTH AMERICAN OUTLOOK by ROYCE LOWE
The Institute of Supply Management’s PMI figure eased back slightly from 48.3 percent in October to 48.1 percent in November. New orders and employment are contracting faster, production is contracting slower; supplier deliveries are slowing from faster and backlogs are contracting faster. Raw material inventories are contracting faster, customer inventories are too low. Exports are contracting from growing, imports contracting slower. Of the 18 manufacturing industries, five reported growth in November: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products;
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Manufacturing Outlook / December 2019
Paper Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The 13 industries reporting contraction in November — listed in order — are: Wood Products; Printing & Related Support Activities; Furniture & Related Products; Textile Mills; Fabricated Metal Products; Transportation Equipment; Primary Metals; Plastics & Rubber Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Machinery; Chemical Products; and Electrical Equipment, Appliances & Components. Comments from the industry continue approximately as in October. There is a general
NORTH AMERICAN OUTLOOK concern regarding reduced demand, but as yet there are no signs of anything catastrophic, nor of great pessimism. CANADIAN manufacturing’s modest recovery continued in November, with the PMI at a ninemonth high. Production and employment were
up at slightly faster rates. There was a continued increase in production, new orders and employment. The Canadian PMI in November rose to 51.4 from October’s 51.2, its highest since February. There was overall business optimism for the next twelve months.
200”
ISO9100:2015 and AS9100D - Since 1994
Manufacturing Outlook / December 2019
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ISM REPORT OUTLOOK
THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS
BREAKING NEWS
ISM PMI at 48.1% for November Report Released December 2nd
ISM PMI for the past 5 years
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Manufacturing Outlook / December 2019
ISM REPORT OUTLOOK
ISM® REPORT ON BUSINESS®
MANUFACTURING E
conomic activity in the manufacturing sector contracted in November, and the overall economy grew for the 127th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The November PMI® registered 48.1 percent, a decrease of 0.2 percentage point from the October reading of 48.3 percent. The New Orders Index registered 47.2 percent, a decrease of 1.9 percentage points from the October reading of 49.1 percent. The Production Index registered 49.1 percent, up 2.9 percentage points compared to the October reading of 46.2 percent. The Backlog of Orders Index registered 43 percent, down 1.1 percentage points compared to the October reading of 44.1 percent. The Employment Index registered 46.6 percent,
NOVEMBER 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® Manufacturing Business Survey Committee
a 1.1-percentage point decrease from the October reading of 47.7 percent. The Inventories Index registered 45.5 percent, a decrease of 3.4 percentage points from the October reading of 48.9 percent. The Prices Index registered 46.7 percent, a 1.2-percentage point increase from the October reading of 45.5 percent. The New Export Orders Index registered 47.9 percent, a 2.5-percentage point decrease from the October reading of 50.4 percent. The Imports Index registered 48.3 percent, a 3-percentage point increase from the October reading of 45.3 percent. Of the 18 manufacturing industries, five reported growth in November: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Paper Products; Miscellaneous Manufacturing ‡; and Computer & Electronic Products.
PMI @ 48.1% ®
‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).
MANUFACTURING AT A GLANCE Nov Index 48.1 47.2 49.1 46.6 52.0 45.5 45.0 46.7 43.0 47.9 48.3
Oct Index 48.3 49.1 46.2 47.7 49.5 48.9 47.8 45.5 44.1 50.4 45.3
% Point Change -0.2 -1.9 +2.9 -1.1 +2.5 -3.4 -2.8 +1.2 -1.1 -2.5 +3.0
Slower
Trend* (months) 4 4 4 4 1 6 38 6 7 1 5
OVERALL ECONOMY
Growing
Slower
127
Manufacturing Sector
Contracting
Faster
4
Index PMI New Orders Production Employment Supplier Deliveries Inventories Customers’ Inventories Prices Backlog of Orders New Export Orders Imports ®
Direction Contracting Contracting Contracting Contracting Slowing Contracting Too Low Decreasing Contracting Contracting Contracting
Rate of Change Faster Faster Slower Faster From Faster Faster Faster Slower Faster From Growing
*Number of months moving in current direction. Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
PMI 2017
2018
50% = Manufacturing Economy Breakeven Line 42.9% = Overall Economy Breakeven Line
2019
48.1%
PMI® Manufacturing contracted in November, as the PMI® registered 48.1 percent, a decrease of 0.2 percentage point from the October reading of 48.3 percent. The PMI® contracted for the fourth straight month, at faster levels compared to October. This marks eight straight months of softening or contraction in manufacturing. All but one (Supplier Deliveries) of the PMI® subindexes registered at levels associated with contraction. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
COMMODITIES REPORTED Commodities Up in Price: Steel — Hot Rolled*; and Steel — Stainless (2). Commodities Down in Price: Aluminum (8); Base Oils; Caustic Soda (2); Freight (2); Polypropylene; Steel (5); Steel — Hot Rolled* (4); Steel — Scrap (2); and Steel Products (11). Commodities in Short Supply: Electrical Components (2).
13
Note: The number of consecutive months the commodity is listed is indicated after each item. *Reported as both up and down in price.
NOVEMBER | DECEMBER 2019 Manufacturing Outlook / December 2019
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ISM REPORT OUTLOOK
ISM Report On Business ®
®
manufacturing
November 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee
New Orders (Manufacturing) 2017
2018
New Orders
2019
ISM’s New Orders Index registered 47.2 percent. Of the 18 manufacturing industries, five reported growth in new orders in November: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Paper Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing‡. 52.5% = Census Bureau Mfg. Breakeven Line
47.2%
Production (Manufacturing) 2017
2018
2019
49.1%
51.7% = Federal Reserve Board Industrial Production Breakeven Line
Production ISM’s Production Index registered 49.1 percent. The seven industries reporting growth in production during the month of November — listed in order — are: Apparel, Leather & Allied Products; Paper Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing‡; and Chemical Products.
Employment (Manufacturing) 2017
2018
2019
ISM’s Employment Index registered 46.6 percent. Of the 18 manufacturing industries, five reported employment growth in November: Paper Products; Computer & Electronic Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Chemical Products.
50.8% = B.L.S. Mfg. Employment Breakeven Line
46.6%
Supplier Deliveries (Manufacturing) 53.1% 2017
Employment
2018
2019
52%
Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in November, as the Supplier Deliveries Index registered 52 percent. The seven industries reporting slower supplier deliveries in November — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; Fabricated Metal Products; and Transportation Equipment.
Inventories (Manufacturing) 2017
2018
2019
Inventories The Inventories Index registered 45.5 percent. The three industries reporting higher inventories in November are: Nonmetallic Mineral Products; Miscellaneous Manufacturing‡; and Food, Beverage & Tobacco Products.
44.3% = B.E.A. Overall Mfg. Inventories Breakeven Line
‡Miscellaneous
45.5%
Manufacturing (products such as medical equipment and
supplies, jewelry, sporting goods, toys and office supplies).
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Manufacturing Outlook / December 2019
ISM REPORT OUTLOOK
ISM Report On Business ®
®
manufacturing
November 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee
Customer Inventories (Manufacturing) 2017
2018
Customers’ Inventories
2019
45%
ISM’s Customers’ Inventories Index registered 45 percent. No industries reported customers’ inventories as too high. The 11 industries reporting customers’ inventories as too low during November — listed in order — are: Wood Products; Textile Mills; Primary Metals; Nonmetallic Mineral Products; Fabricated Metal Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Computer & Electronic Products; Machinery; and Chemical Products.
Prices (Manufacturing) 2017
2018
Prices
2019
The ISM Prices Index registered 46.7 percent. The two industries reporting paying increased prices for raw materials in November are: Computer & Electronic Products; and Miscellaneous Manufacturing‡.
46.7% 52.5% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line
Backlog of Orders (Manufacturing) 2017
2018
Backlog of Orders
2019
ISM’s Backlog of Orders Index registered 43 percent. The four industries that reported growth in order backlogs are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; and Computer & Electronic Products.
43%
New Export Orders (Manufacturing) 2017
2018
New Export Orders
2019
ISM’s New Export Orders Index registered 47.9 percent. The five industries reporting growth in new export orders in November are: Food, Beverage & Tobacco Products; Computer & Electronic Products; Paper Products; Miscellaneous Manufacturing‡; and Chemical Products.
47.9%
Imports (Manufacturing) 2017
2018
2019
Imports ISM’s Imports Index registered 48.3 percent. The six industries reporting growth in imports in November — listed in order — are: Wood Products; Furniture & Related Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; and Machinery.
48.3% ‡Miscellaneous
Manufacturing (products such as medical equipment and
supplies, jewelry, sporting goods, toys and office supplies).
Manufacturing Outlook / December 2019
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METALS OUTLOOK
DECEMBER 2019
METALS OUTLOOK by ROYCE LOWE
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Manufacturing Outlook / December 2019
METALS OUTLOOK STEEL PRODUCTION AGAIN DECREASED IN THE MONTH OF OCTOBER for the 64 reporting countries – which represent 99 percent of world crude steel production – by a relatively large percentage, 2.8 percent year-over-year, at 151,494 MT. Primary Global Aluminum Production in October 2019 was reported at 5.392 million tons, with production in China, at 3.014 million tons, representing 56 percent of world total. Production was 494,000 tons in GCC; 375,000 tons in the rest of Asia; 286,000 tons in Western Europe; 316,000 tons in North America and 356,000 tons in Eastern and Central Europe. Global production of aluminum in 2018 was just over 60 million tons, with China producing 33 million tons, followed by Russia, India and Canada. Canada produced 1.115 MT of crude steel in October, off 2.0 percent yearover-year. MEXICO had a bad month in November. There was a renewed drop in new orders that led to the quickest drops in production, input buying and employment since the survey started in April 2011. This was on the back of weak demand and a solid reduction in new export orders. Business confidence was at its lowest level in survey history. Their PMI for November, 48.0 was down from October’s 50.4. Mexico produced 1.515 MT of crude steel in October, down 3.6 percent year-over-year. Even China’s steel production decreased yearover-year, by 0.6 percent. CHINA produced 81.521 MT of crude steel in October, down 0.6 percent yearover-year; Japan 8.157 MT, down 4.9 percent year-over-year; India 9.089 MT, down 3.4 percent year-over-year and South Korea 5.983 MT, down 3.5 percent year-over-year. Taiwan produced 1.825 MT in October, down 9.8 percent. U.S. crude steel production for October 2019 was 7.407 MT, down 2.0 percent yearover-year.
Tariffs à la Trump, is changing tack and going the way of Nucor and Steel Dynamics, the country’s most successful and - in Nucor’s case - most innovative. U.S. Steel is looking to place itself in the Electric Arc Furnace (EAF) steelmaking sector, and is doing it by the acquisition of Big River Steel and by construction of its own EAF complex in Alabama. In any event, U.S. Steel wants out of the blast furnace - basic oxygen furnace (BOF) route, and through its Big River purchase will be looking to muscle its way further into the automotive business by supply of the advanced alloy automotive steels that are the hallmark of Big River’s production. U.S. Steel idled two blast furnaces in July 2019. Nucor, for its part, is building a new plate mill in Brandenburg, Kentucky, that is scheduled to produce 1.2 million tons of steel plate per year, in the thickness range 3/16” to 14”. The mill will be operational in 2022, and will produce 97 percent of the plate product range called for by the U.S. market. A U.S. company that is rarely mentioned in discussions on the steel business is Carpenter Technology, a company that has always been renowned for its product quality and its innovative approach to the business. Over the years Carpenter has developed a wide range of free-machining stainless and heat-and-corrosion
The U.S. steel industry is in the midst of change. Its once El Supremo company, U.S. Steel, having gone through tough times and being recently helped out by Manufacturing Outlook / December 2019
25
METALS OUTLOOK
resisting steels, and has recently moved into additive manufacturing. Carpenter is basically in a niche market, is very good at what it does, and has a second-to-none reputation in its field. The bulk of the action in the steel business is in the flat-rolled area, and will doubtless continue to be, for here we are in the automotive, domestic appliance and heavy construction areas. There is little doubt that, for the near-term, probably medium-term future, what used to be known as cars, and today are known as cars, light trucks, SUVs, and crossovers, will continue for the most part to be made from steel. Recent modifications to steel chemistry and processing technology led to the development of alloys known as advanced high strength steels whose enhanced properties allow the use of thinner sections, hence a lighter vehicle with reduced fuel consumption. Steel has competition for certain areas of a vehicle, and as we know the Ford F150 pickup carries a significant quantity of aluminum. But this metal, although one third the density of that of steel, is relatively
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Manufacturing Outlook / December 2019
expensive and its applications are limited to certain less critical areas of a vehicle. Carbon fibers have been tried on certain top-ofthe-line vehicles, but here again, although light and extremely strong, they are very expensive. Engineering expertise at steel mills and in research laboratories will continue to develop and adapt this range of alloy steels. Cleveland-Cliffs, North America’s largest producer of iron ore pellets, has merged with AK Steel. There is a potential to use the blast furnace in Ashland to produce merchant pig iron, although at this time there is no firm date for doing this. Hot-rolled steel and cold-rolled steel prices are changing from day to day. In late November, H.R. was at around US $537 per ton, C.R. at around US $723 per ton. Copper was unchanged at $2.67 per lb. in early December; Aluminum was unchanged at $0.82 per lb. early December; Nickel was down, from $7.40
METALS OUTLOOK in early November, to $6.20 in early December; Zinc was down from $1.16 early November to $1.04 in early December. In Europe, crude steel production in Germany in October was at 3.323 MT, down 6.8 percent year-over-year; in Italy 2.225 MT, down 3.7 percent year-over-year; in France 1.170 MT, down 10.6 percent yearover-year and in Spain 1.225 MT, down 7.6 percent year-over-year. Russia’s crude steel production for October was at 5.950 MT, up 2.4 percent year-over-year; Ukraine’s was 1.561 MT, down 12.7 percent year-over-year. The UK produced 0.621 MT of crude steel in October, up 32.2 percent year-over-year. Primary Global Aluminum Production in October 2019 was reported at 5.392 million tons, with production in China, at 3.014 million tons, representing 56 percent of world total. Production was 494,000 tons in GCC; 375,000 tons in the rest of Asia; 286,000 tons in Western Europe; 316,000 tons in North America and 356,000 tons in Eastern and Central Europe. Global production of aluminum in 2018 was just over 60 million tons, with China producing 33 million tons, followed by Russia, India and Canada.
Manufacturing Outlook / December 2019
27
AEROSPACE OUTLOOK
DECEMBER 2019
AEROSPACE OUTLOOK by ROYCE LOWE
The Boeing 737 MAX saga has become a prime example of the vagaries of forecasting production, profits, and the overall picture of the global commercial aircraft industry. March 2020 will signal a year without the MAX, as it has come to be called, and at the moment the FAA still needs to approve new software developed by Boeing with other changes required to prevent further disasters. United Airlines and American
28
Manufacturing Outlook / December 2019
Airlines have pulled the MAX from their schedules through March 2020, as has Southwest Air, a company whose fleet is 100 percent Boeing, and a company becoming increasingly frustrated with delays, saying it may review whether or not to add ‘other aircraft types.’ The United Arab Emirates, meanwhile, agreed to purchase 50 A 350 - 900 aircraft from Airbus.
AEROSPACE OUTLOOK The question the commercial aircraft industry is now asking is when will MAX fly again. Although not the proverbial end of the world, it has already disrupted, and will continue to disrupt, commercial aircraft deliveries, and will put more pressure on other manufacturers - particularly Airbus - to up their production. In fact, the global commercial aircraft business is for all intents and purposes a two-company race, although there are companies in Japan, Brazil and China that are gearing up to be in the game in coming years. It is without doubt a given that Boeing’s experience with the MAX will prompt commercial airline manufacturers worldwide to improve and increase their testing and certification procedures. This applies equally to engine manufacturers, where the big three, Rolls Royce, Pratt and Whitney, and CFM International, have from time to time experienced quality problems with their engines. A cracked fan blade on a CFM-56 engine on a 737 NG (next generation) aircraft broke loose, some 18 months ago, and broke a passenger window. There was an emergency landing, and one passenger death.
Boeing is teaching us a lesson on robotics. The company has been trying unsuccessfully for four years to have robots build two main fuselage sections for its 777 and 777X jetliners. So it’s back to skilled human mechanics to insert fasteners into holes drilled along the circumference of the plane by an automated system called ‘flex tracks’ honed over years on the 787 Dreamliner. This combined human-robot system has proved to be more reliable, requiring less work by hand and less rework than was possible by the robots. Imagine – humans out-performing robots! Boeing says that in spite of its problems, it learned a lot about automation technology. It also learned more than a bit about programming code. Other manufacturers, tempted by a workforce immune from illness, fatigue and hunger, are finding cases where the technology can’t match the dexterity, creativity and precision of human hands. Tesla, for example, had a trying experience in its California plant, when it had to move certain operations outside, under a tent.
Manufacturing Outlook / December 2019
29
AEROSPACE OUTLOOK
Commercial Supersonic Flight is ready For A Comeback by Craig Rovere
It’s been more than 15 years since the last commercial supersonic flight. The Concorde fleet of 14 aircraft ferried passengers across the Atlantic at speeds 3 times that of regular commercial aircraft. The problem was they could never make any money doing it. The big problem was fuel. Concorde burned a lot of very expensive fuel to maintain supersonic speeds. In addition to the fuel costs and passenger-limiting, sleek design of the aircraft, operators could never expand their routes to include overland flights which are banned by the FAA. The sonic boom, which is a loud, window-shattering thud created by aircraft breaking the sound barrier, was deemed too disturbing to citizens and thus supersonic flights over populated areas was prohibited. But recent developments in supersonic technology have opened the door to supersonic flight over land here in the United States. Denver, Colorado-based Boom Supersonic is developing a commercial aircraft called Overture that will seat between 55 and 75 passengers, travel at Mach 2.2
30
Manufacturing Outlook / December 2019
(1,451 mph), use cheaper, alternative biofuels, and, according to Boom Supersonic, a minimal sonic boom. According to Blake Scholl, founder and CEO of Boom Supersonic, “Overture is moving through the design phase, where its key technologies and specifications are being developed and refined. Many of the key components have already undergone several successful tests, including testing our engines with sustainable alternative fuels. Overture will begin flight testing in the mid2020s. We’ve already executed successful engine tests using pure biofuel and are designing our aircraft to accommodate alternative fuels”. The sonic boom problem is being solved by meeting in the middle; The FAA has reduced it’s restrictions on they type of sonic boom allowed over land and where these events can take place. Boom Supersonic, in accord with NASA’s X59 project have developed supersonic aircraft with a greatly reduced boom. According
AEROSPACE OUTLOOK
to a Fact Sheet published on the FAA”s website on December 18, 2019, “There is support in Congress for the advancement of new supersonic aircraft. Section 181 of the FAA Reauthorization Act of 2018 specifies that the FAA administrator exercise leadership in the creation of federal and international policies, regulations, and standards relating to the certification and safe and efficient operation of civil supersonic aircraft.” What this means is the FAA and Congress recognize their is a commercial need for supersonic flight and new technology has made it possible without sacrificing quality of life for those on the ground.
When you look at the numbers. It’s easy to see the allure of dramatically shortened travel times. Boom Supersonic is claiming flight time from Sydney, Australia to Los Angeles in just 6 hours and 45 minutes compared to the current travel time of 15 hours. According to Boom Supersonic’s website, Japan Airlines and Virgin Group will be operating Overture aircraft in the near future, with 30 aircraft on pre-order between the two companies While no firm date has been set, Boom Supersonic says commercial flights will be under way in the next 5 years.
Manufacturing Outlook / December 2019
31
AUTOMOTIVE OUTLOOK
AUTOMOTIVE OUTLOOK by ROYCE LOWE
Whenever or wherever we look to see what’s happening in the automotive world these days, we run into electrification, battery packs, driving ranges (no, not golf) and where the big players in the automotive game are about to start producing what will come to be known as electric cars, or plug-in hybrids, or BEVs, or PHVs or whatever will be designed next. Electric is what it’s all about, and what it will be about for the next good number of years. Now we have electric trucks such as Tesla’s Cybertruck with its stainless steel body and breakable windows, recently unveiled before a crowd of people willing to put down $100 as a deposit on a truck to be delivered they’re not quite sure when. There are already over 200,000 takers. Next on this agenda is an electric-powered pickup. Tesla’s doing well; it’s taking on the big boys in Europe and coming away with awards for car-of-the-year. Tesla’s latest big news is its decision to build a plant just outside Berlin, Germany, to make batteries, powertrains, and vehicles, beginning with the model Y; and to take on the competition in their own backyard. Ford, which is “getting out of cars,” is sticking with its iconic Mustang, but an electric Mustang, in fact an electric Mustang SUV. Is there no limit to these designers’ imaginations? This model, the Mustang
32
Manufacturing Outlook / December 2019
Mach - E SUV, will be produced at 50,000 units per year by 2021. Volkswagen, of course, will not be outdone, and via Chinese joint ventures in Shanghai and Foshan, it projects a combined annual capacity of 600,000 electric units in the next couple of years. VW will invest $800 million to expand its Chattanooga facility and will introduce EV production there by 2022, including electric battery pack assembly. The VW Group projects a total volume of 22 million all-electric cars worldwide by 2028, with over 50 percent of these produced in China. VW will invest some 66 billion euros (US $73.2 billion) in electrification production and technology over the next five years. Audi, the VW Group’s biggest money maker, will cut around 10,000 jobs in preparation for its foray into the production of electric vehicles. Daimler will cut a similar number. These forecasts are all well and good, and will go from cars to SUVs to light trucks to buses to longrange trucks. There is apparently no limit to where this can go, and it is an admirable way to reduce carbon emissions. Acceptance of the vehicles by consumers is still the big question surrounding their future, although the horse and buggy was the primary means of family transportation prior to the automobile.
DRAKO GTE
AUTOMOTIVE OUTLOOK
SILICON VALLEY’S ALL-ELECTRIC SUPERCAR SLAYER
by CRAIG ROVERE
Silicon Valley electric vehicle startup Drako Motors is making big claims about their new GTE electric supercar. Nothing new there. EV startups that make splashy, headline-worthy performance claims is a common thing in this space. Shipping cars or establishing an actual functioning business is something not so common. Faraday Future promised an EV as revolutionary as the iPhone back in 2016. Byton’s prototype SUV claimed to be a “new design icon” 2 years ago. Neither of these companies has shipped a single car. Drako Motors is clearly aware of the public’s reluctance to believe yet another well-funded EV startup talking the talk without backing it up. At the Monterey Car Week this summer they unveiled what they say is the first production version of their new GTE EV supercar. The word “prototype” was noticeable absent here, which was a big point of interest for enthusiasts. It signals that the public can actually buy one of these cars in the very near future. If you can cover the $1.2 Million price tag that is. The Drako Motors story starts in 2013 in San Jose, California. Founded by American entrepreneurs, Dean Drako and Shiv Sikand, their mission,
according to their website, has been to “Create stunning, driver focused supercars that deliver exhilarating performance with maximum control and safety—on road and track.” Initial tests of the first prototype drive system were happening at Germany’s famous Nürburgring as far back as 2015 where their test mule set a track record of 7 minutes and 49.04 seconds. Since they don’t have the financial or technical resources as Tesla or Porsche, they’ve had to get creative in the design and construction of their supercar. Instead of specing custom fit components, they’ve opted to use “off-the-shelf” high-performance components such as Brembo brakes and Öhlins suspension. They even built the car using car the chassis of failed automotive startup Fisker Automotive’s hybrid sports car. None of the creative, cost-mitigating solutions have compromised performance. According to Drako Motors, the GTE will debut with a staggering 1,200 horsepower, delivered through 4 electric motors, one at each wheel, with torque-vectoring supplied by what they refer to as “industry leading” algorithms. Zero-to-sixty times have not been officially made public, but Drako is claiming a top speed of 206 MPH. Drako plans to make only 25 GTE’s and the price is $1.25 million. Deliveries have been promised “in 2020”, according to the company website. Manufacturing Outlook / December 2019
33
ISSUES OUTLOOK
DECEMBER 2019
ISSUES OUTLOOK by ROYCE LOWE
Most of us have heard of 3D-printing. Maybe some of us own a 3D printer. We normally associate this technology with the manufacture of small parts such as prototypes, jet engine components, and even dental crowns. But the process has been scaled up and it is capable of making much bigger parts than were previously possible, and printing them faster. Researchers at the University of Maine are presently in the process of testing an 8-meter (25-foot) patrol boat that took just 72 hours to make from scratch, using a giant 3D printer. This patrol boat is part of a U.S. Army project, and the University team linked up with Oak Ridge National Laboratory in Tennessee, which helped develop the printing process, and Ingersoll Machine Tools in Illinois, which built the printer. For all intents and purposes, the size of the 3D printer determines the size of the object it can print out. Most printers are not much bigger than a large
34
Manufacturing Outlook / December 2019
domestic refrigerator, but with time, engineers have managed to scale things up, by, for example, mounting the printing mechanism on a piece of external scaffolding. The result is often, however, a slow, inaccurate piece of equipment that makes objects that require expensive hand finishing. The printer developed by the University of Maine overcomes the problem of scale by suspending the printer’s nozzle that extrudes the “ink” from a gantry. The “ink” is molten thermoplastic resin containing carbon fibers. As with any 3D-printing process, the nozzle moves to build the desired object up layer by layer. Upon completion of each layer, the work is raised slightly to deposit another on top of it until the object is finished. The Maine university printer does this quickly, extruding material at a rate of 70kg (150 lbs) per hour. At the moment, it can make objects up to 30 meters long, 7 meters wide and 3 meters high, but a larger gantry would allow manufacture of bigger objects.
ISSUES OUTLOOK The 3D printing process has made steady progress in size, speed and composition of materials that can be printed. For example, resins containing materials such as silicon carbide can be processed into wearresistant and heat-resistant ceramics for aerospace and automotive applications. The printing of large metal objects remains the most difficult area of 3D printing. Here successive layers of a metallic powder are melted using a laser or an electron beam, but there is the problem of oxidation of the powder and attendant contamination. So a chamber filled with an inert gas is required, but this is both tricky and extremely expensive. Yet fear not, there are ways of overcoming this problem. Robots armed with various types of MIG (metal inert gas) welders come to the rescue here. These welders work by feeding a sacrificial wire electrode through the nozzle of a welding torch, and
depositing the metal, layer by layer, while an inert gas is blown over the weld through the welding torch. Layer by layer, the object is completed. This process was used by MX3D, a Dutch 3D printing company that has built a lightweight bicycle from aluminum and a 12-meter (40 foot) stainless steel pedestrian bridge that will cross an Amsterdam canal. Relativity Space of Los Angeles uses large, continuous-welding robots to build parts for space rockets. Each robot has an aluminum-alloy wire fed along its arm to the print head at its tip. The print head uses a high-temperature plasma arc to melt the wire and deposit it in layers whilst blowing an inert gas around the arc. The company says that 3D-printed rockets can be made faster and with fewer parts than conventional ones. They should try to convince Messrs Musk, Branson and Bezos of all this. They can head for the stars together.
Manufacturing Outlook / December 2019
35
ENERGY OUTLOOK
DECEMBER 2019
ENERGY OUTLOOK by ROYCE LOWE
Florida, the sunshine state, trails nineteen states, including Massachusetts, New Jersey, New York, and Maryland, in the use of solar power for electricity generation. Solar experts and environmentalists blame the state’s utilities, who spend tens of millions of dollars on lobbying, ads and political contributions. When homeowners purchase solar equipment, utilities delay connecting the system for months. California, on the other hand, in 2018, became the first state to require solar power for all new homes. Florida utilities make money on virtually all aspects
36
Manufacturing Outlook / December 2019
of the electricity system, from production of power, its transmission, and its sale and delivery. Critics say the companies have much at stake in preserving that control. Utility executives have been quoted as saying people can’t have solar power in Florida because there are so many cloudy days. Florida, in fact, relies largely on natural gas, and some utilities get as much as a quarter of their power from coal. The state’s utilities have been expanding their own production of solar power, but Florida is one of eight states that prohibit the sale of solar electricity directly to consumers unless
ENERGY OUTLOOK the provider is a utility. There is, further, a state rule, enforced by utilities, requiring expensive insurance policies for big solar arrays on houses. For Florida Power and Light, and Duke Energy, the state’s two largest utilities, it’s a question of simple economics. Their rational for lagging in the adoption of renewable energy sources is that the state keeps electricity rates lower than those in the Northeast and California, making the savings for switching to solar more limited. The incessant lobbying and obstacles made it tough on any homeowner who wished to install solar power, but the utilities did react to the building pressure from environmental and other groups and did, in fact, install several solar farms. In spite of this, in 2018, solar energy was responsible for only one percent of electricity generation in Florida, compared to 19 percent in California and almost 11 percent in Vermont and Massachusetts.
Scott McIntyre, chief executive of Solar Energy Management, a state-wide leader in commercial solar power based in St. Petersburg, said the gains the state appeared to be making were little more than a facade. He doesn’t think that the state is about to come up with any kind of energy policy that benefits consumers for a long time. They just keep making things more difficult. The Solar industry has also been the victim of Trump tariffs. A report issued by the Solar Energy Industries Association states that the tariffs on solar panels will cost $19 billion in (lost) investment and lead to 62,000 lost jobs by 2021. The costs of building solar farms increased, and developers cancelled 10.5 GW of projects, enough to power 1.8 million homes. In fact, 31 jobs were lost for every new position created by the tariffs. It will take quite some time and a meeting of minds to fix this situation.
Sunrun, the number one solar panel producer, broke through one of the barriers to rooftop solar last year when it won approval to lease solar panels to homeowners, a step subsequently taken by Vivint Solar and Tesla. But regulators stopped short of allowing solar companies to own the panels and simply sell the power directly to consumers, as they can in at least 27 states, the District of Columbia, and Puerto Rico. Florida Power and Light points out its role on a solar future, namely Babcock Ranch, developed near Fort Myers, by a company that extols it as the nation’s first sustainable town. The power company built a solar farm that largely supplies the town’s energy needs. FPL announced four similar-sized projects in April 2019, and Duke says it is also building farms that size. “FPL has been working for many years to advance solar energy while keeping customer bills low,” said a company spokesman. The utility said it plans to add enough solar capacity to power about 1.5 million homes and provide 20 percent of its total generation by 2030. Syd Kitson, an environmentalist who is also a developer, and the person responsible for Babcock Ranch, which will include 20,000 homes when fully developed, proposed building a town that could showcase the benefits of solar power. He’s a developer in a state that’s home to a lot of sunshine, so all this makes perfect sense to him. But solar proponents feel the utilities need to be pushed further. Manufacturing Outlook / December 2019
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GLOBAL PMI OUTLOOK
GLOBAL PMI OUTLOOK
by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS In November, we saw a global economy that continued to slow but gave some encouragement that we are at/near a bottom. Of the eighteen indexes we monitor, ten were contractionary and eight were expansionary with seven of those eight strengthening. Bright spots were in the manufacturing data from Taiwan’s CIER (54.9, +3.8) and the U.S. ISM NonManufacturing PMI (53.9, -0.8). Taiwan data tends to be a good indicator for the Chinese economy since the two are closely tied together. The Non-Manufacturing data exhibited strength in New Orders and Employment – the most important components. Any resolution with regard to political, trade, or financial challenges will be a positive for the global economy. The
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Manufacturing Outlook / December 2019
scatterplot below illustrates overall weakness as ten of eighteen indexes were under 50 last month. Eurozone: The Eurozone PMI (46.9, +1.0) failed to grow for the tenth consecutive month. Germany (44.1, +2.0) led the decline as it failed to post a PMI reading greater than 45 for the ninth consecutive month. Austria (46.0, +0.5), Spain (47.5, +0.7), Netherlands (49.6, -0.7), and Ireland (49.7, -1.0) were also below the neutral mark. On the positive side, significant growth was found in Greece (54.1, +0.7) and France (51.7, +1.1). United Kingdom: Given the degree of political and economic uncertainty, the UK/CIPS PMI (48.9, -0.8) indicated a modest loss of upward momentum in November after a six- month high in October. The PMI has averaged 50.3 YTD with growth primarily in Q1. China: China’s Official Report, the CFLP PMI (50.2, +0.9), climbed above the 50 mark following six months of contraction. The Caixin Manufacturing PMI (51.8, +0.1) continued to gather momentum, posting an increase for the fourth consecutive month and the highest reading since December 2016. Growth in both PMI readings gives credibility to improved conditions in China.
ASIA OUTLOOK India: India’s PMI (51.2, +0.6) was expansionary for the 28th consecutive month. India’s Manufacturing PMI has averaged 52.2 YTD.
manufacturing sector for North American trading partners. USMCA ratification will result in greater movement of goods across North America’s borders.
South Korea: The PMI (49.4, +1.0) remained in contractionary territory in November. The PMI posted a reading below 50 for the seventh consecutive month.
In November, the U.S. manufacturing ISM PMI® (48.1, -0.2) contracted for the fourth consecutive month. The YTD average for the PMI is 51.6. The past relationship between the PMI® and the overall economy indicates that the PMI® for November (48.1) corresponds to a 1.5% increase in Real GDP on an annualized basis, according to the press release.
North America: Canada’s PMI (51.4, +0.2) has averaged 50.6 YTD. Mexico’s PMI (48.0, -2.4) has averaged 49.9 YTD. Both indexes indicated little change in the overall
GLOBAL OUTLOOK
ASIA OUTLOOK by ROYCE LOWE
CHINA saw a further modest improvement in the health of its manufacturing sector in November, with new orders up strongly, underpinning a further solid increase in production. New export orders saw their first back-to-back monthly increase for over one-and-a-half years. Capacity pressures put backlogs of work up again. Employment is stable after seven consecutive months of decrease. Their PMI for November rose slightly to 51.8 from October’s 51.7. China’s sales of passenger cars and commercial vehicles were down in total by 4.0 percent in October, at 2.284 million units. JAPAN saw a significant drop in new orders in November, leading to a further drop in production. Asian trade weakness is limiting exports. There
was continuing weak demand in November, and production was down for the eleventh consecutive month. Manufacturing employment continues to increase as new trainees are recruited to replace retirees. Their PMI for November increased slightly from October’s 48.4 to 48.9. INDIA saw new orders up modestly and production up at the weakest rate in eighteen months, with employment down for the first time since March 2018. There was a further increase in export sales and a marginal increase in input costs and output charges in November. Their PMI edged up from October’s 50.6 reading to 51.4 in November. Manufacturing Outlook / December 2019
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EUROZONE OUTLOOK
GLOBAL OUTLOOK
EUROZONE by ROYCE LOWE
IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) continued in contraction, but at the lowest rate in three months. November’s PMI at 46.9, was up from October’s 45.7. There was a less serious reduction in new orders and production in November, but job losses were sustained despite an improvement in business confidence.
and economic uncertainty. Production, new orders, and employment were all down, and there was destocking due to the Brexit delay.
The current contraction period is ten months. This was the fifteenth monthly reduction in backlogs due to continuing spare capacity. IHS Markit’s PMI for the UK fell back from 49.6 in October to 48.9 in November, along with political
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Manufacturing Outlook / December 2019
SOUTH AMERICAN OUTLOOK
GLOBAL OUTLOOK
SOUTH AMERICA by ROYCE LOWE
BRAZIL saw a strong rise in demand and stronger rates of expansion in new orders, production, and input buying. Business sentiment improved. November’s PMI, at 52.9, from October’s 52.2 continued to show an improvement in overall business conditions, with growth sustained in consumer, intermediate and investment goods categories. Intermediate goods showed the quickest growth rate. The improvement was due mostly to domestic business. Brazil’s crude steel production for the month of September was 2.597 MT, a decrease year-over-year of 19.4 percent.
The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – went back into expansion in November to a seven-month high, from October’s 49.8 to 50.3 in November. Production and new orders were up, mostly centered on the consumer goods industry. Global manufacturing employment stabilized following a six-month sequence of job losses. Manufacturing Outlook / December 2019
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ORGANIZATIONAL VALUES ONLY WORK WHEN TIED TO BEHAVIORS
ORGANIZATIONAL VALUES ONLY WORK WHEN TIED TO BEHAVIORS BY ANDREA BELK OLSON
There’s a big push in companies today to create healthy cultures. Many organizations go through detailed processes to identify where culture is going astray and dive into implementing tactics, including defining company values. The problem is too many companies create values without meaning. Written values are often vague and ignored. Many companies have nice-sounding values, such as “integrity”, “respect”, “communication” and “excellence”. But these values mean nothing without the behaviors to underline and reinforce them. (As a side note, Enron had those same ‘values’ displayed in their lobby). Actual values are behaviors. Behaviors which are true to the organization today, but can also continually improve and grow. These behaviors have significance to the organization - where without it, the culture wouldn’t be the same. These behaviors need to be distinct and genuine generic values are meaningless. Take, for example, the value of “excellence”. What does excellence mean? How does excellence manifest into a series of behaviors? How does excellence impact not only customers but employees? What does excellence look like for each and every department? Is it the same or different? What kind of excellence is important (i.e. work quality, work efficiency, etc.)? This is the fundamental problem with generic values - they lack structure, meaning, relevance and most importantly, impact.
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Manufacturing Outlook / December 2019
Alternatively, think about framing that vague value as a behavior, such as “selflessness”. This word has much more meaning. It’s something you can do and be. While open to interpretation, uniform examples can be provided to clarify the behavior, such as “be open-minded” and “make time to help others” which provides a broader framework for selfless behavior. This behavior becomes something that can be held up as an example across roles and departments, and even integrated into employee performance reviews. The real values of a company are shown by who gets rewarded or let go. The real values of a company are reflected in the behaviors of each and every person within the organization. You can’t simply create your “values list” and call it a day. Your values shape your organizational culture, your hiring practices, and much more. Values are too important to simply be a display in your lobby. They drive culture, and at their core are behaviors. About the Author: This introspective essay was previously published on LinkedIn. com by Andrea Olson. In addition to writing and consulting, Andrea Olson speaks to leaders and industry organizations around the world on how to craft effective customer-centric organizations. More information is available on pragmadik.com or thecustomermission.com.
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