Metals & Manufacturing Outlook for June 2019

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Metals & Manufacturing Outlook / June 2019

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TABLE OF CONTENTS

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PUBLISHER’S STATEMENT

ENERGY OUTLOOK

A word from our publisher

06 MANUFACTURING OUTLOOK A global look at manufacturing

08 THE CREDIT MANAGER’S OUTLOOK

Energy and the environment

20 GLOBAL PMI OUTLOOK

by Norbert Ore

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by Dr. Chris Kuehl

EURO OUTLOOK

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A look at Europe

NORTH AMERICAN OUTLOOK Manufacturing in the US, Canada and Mexico

12 METALS OUTLOOK The cost, making and treating of metals

14 AEROSPACE OUTLOOK The aerospace industry

15 AUTOMOTIVE OUTLOOK Auto industry news

16 SAFETY OUTLOOK from the American Society of Safety Professionals

18 ISSUES OUTLOOK Issues around the globe

23 ASIA OUTLOOK China sees little change

24 CNC MACHINING The complete engineering guide part 4

29 SOUTH AMERICA OUTLOOK Brazil in the spotlight

30 JUNE ISM REPORT The Manufacturing Executive Summary Report on Business presented by the Institute for Supply Management

34 THE UNITED TECHNOLOGIES/ RAYTHEON MERGER

by Craig Rovere

PUBLISHERS STATEMENT

PUBLISHER’S STATEMENT Tipping Point, Trough or Trench?

Looking back over the Institute for Supply Management® Report on Business® for Manufacturing, one cannot help but recognize that the Purchasing Manager’s Index has been headed downward when viewed from January of 2018. The up and down cycles month-by-month have cooled from the mid-60’s to the low 50’s. It brings up an important question: Was January of 2018 a tipping point, are we headed into a trough that will hover in the low 50’s through the remainder of 2019, or will the PMI start digging a trench in the 40’s?

Several factors are at play: the Trump tariffs, the Fed interest rates, a strong dollar, weakening global economies, and the length of this economic expansion, which is the longest since the Great Depression.

By the way, this recovery is apparently being labeled The Great Recession expansion from the charts we’ve seen.

Overall, one force is driving all of this. It isn’t a bull or a bear; it is the visage of uncertainty. Will the Fed raise or lower rates? The feeling right now is that it will lower rates. The strong dollar against other global currencies makes buying U.S. goods expensive, and when other global economies simultaneously slow, it eventually has to have an impact across the American economy. At 15% of GDP, the slowing of exports will reduce some jobs and some revenues in the U.S. in some sectors.

Will Trump get deals and eliminate tariffs with China, and not impose new ones on Mexico? Everyone says China will do a deal. We say, maybe. For 117 years, China and Russia were in a border dispute. The Russians claimed the territory as theirs, and even attacked China twice to force the surrender of the area.

Russia negotiated for over 100 years and eventually gained – nothing. Calling the Chinese negotiators ‘intractable’, the Russians simply gave up on the border dispute and signed a treaty to settle the matter.

This is the lesson the Trump administration may have overlooked, that China really doesn’t have to give in, and going at them alone is folly. They may simply wait us out, allowing their own citizens to suffer the trade pain much like Trump allows farmers to be ‘pained patriots’. In the end, tariffs may not work – just as they have never worked before.

And then, let us not forget the length of this expansion at 120 months, according to Wikipedia’s revised start month of June 2009 (previously it was listed as April of 2009). That list can be viewed here: https:// en.wikipedia.org/wiki/List_of_economic_expansions_in_the_United_States. At some point, an expansion loses its steam, but whether or not the U.S. will see two consecutive quarters of negative GDP in 2019 is doubtful. It could be that any softening will produce weak GDP between 1.2 and 2.0% though that could cause an unfavorable ripple effect. If we begin to see that, we’ll report on it as it happens!

In the meantime, enjoy this issue of Metals & Manufacturing Outlook, the ezine from Jacket Media, the producers of Manufacturing Talk Radio, the WAM podcast, Manufacturing Matters with Cliff Waldman, Where’s Willie, Full Time with Amy Nicklaus, and several other insightful podcasts that can be found at mfgtalkradio.com or womenandmfg.com.

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.

Metals & Manufacturing Outlook / June 2019

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MANUFACTURING OUTLOOK

JUNE 2019

MANUFACTURING OUTLOOK GLOBAL MANUFACTURING IN CONTRACTION. U.S. PMI RETREATS AGAIN. EUROPE AND OTHERS STILL SHAKY. TRADE DEALS, TARIFFS AND BREXIT ARE STILL IN A STATE OF FLUX. THERESA MAY QUITS.

by ROYCE LOWE The Global Manufacturing PMI went into contraction in May at 49.8. Japan, the Eurozone, Canada and the UK were also in contraction, while the U.S. fell back to its lowest PMI reading in years - although still growing.

The U.S. president meanwhile was threatening more willy nilly tariffs, this time on Mexico. He did an about-turn on that one. In the meantime, the simmering war with China continues.

The BLS jobs report for May shows the addition of 75,000 non-farm payroll jobs. The unemployment rate remained at 3.6 percent, its lowest rate since

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Metals & Manufacturing Outlook / June 2019

December 1969. The forecast was for 175,000 new jobs. Professional and business services added 33,000 jobs, health care 16,000 jobs. There was no significant change in mining, manufacturing, transportation or warehousing. The average monthly job increase for 2019 is 164,000; for 2018 it was 223,000. It is a tight labor market.

The Bureau of Economic Analysis recently released its ‘second’ estimate for the annual rate of real GDP growth in the first quarter of 2019, putting it at 3.1 percent. The figure for the fourth quarter of 2018 was 2.2 percent.

MANUFACTURING OUTLOOK In the UK, the prime minister quit with Brexit still far from settled, and her possible successor is being touted as the man for the job by the (then) visiting Trump. The one constant, reliable person on the spot is the Queen, but she, unfortunately, has very little to say about it all.

The ISM PMI figure for U.S. manufacturing slipped back from 52.8 percent in April, to 52.1 percent in May, representing the 33rd consecutive month of growth in manufacturing. The overall economy grew for the 121st consecutive month.

IHS Markit’s remarks on the U.S. noted that the PMI was at its lowest since September 2009, at 50.5 in May, down from 52.6 in April. Production growth eased and new orders fell for the first time since August 2009. There was weak demand, ongoing trade tensions and expression of the joint-lowest degree of confidence regarding future output since such data was first collected in mid2012. Employment was up at its slowest rate since March 2017, backlogs were unchanged, and there was the slowest expansion in production since June 2016.

The seasonally adjusted annualized rate (SAAR) for May stood at 17.40 million units, versus 17.24 million in May 2018 and 16.41 million in April.

U.S. LIGHT VEHICLE SALES……..Light vehicle sales were down 0.3 percent in May.

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. 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, annual rate. The consumer price increases represent year-over-year changes. The unemployment figures, %, are for the month as noted.

Metals & Manufacturing Outlook / June 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 NACM’s Economist Chris Kuehl, Ph.D., writes: It might be useful to remind those who follow the Credit Managers’ Index (CMI) just why this is such an important tool for assessing the state of the economy. Why do people pay so much attention to the CMI and the index that inspired it—the Purchasing Managers’ Index (PMI). It really comes down to four factors: timeliness, accuracy, lack of bias and predictive ability. Both indices track changes in the economy on a monthly basis, reflect consistent data from contributors, remain free of the bias that often occurs when someone is trying to manipulate outcomes and do a good job of predicting what is to come. The CMI is even better at this than the PMI given the reality of a credit manager’s life—they are always more concerned about what is to come than what is happening right now. They want to know what shape a company will be in when it is time to pay the debt owed—30, 60, 90 days (or more) ahead.

This month’s CMI is trending in a positive direction for the second month in a row. This has not happened since August and September of last year. May’s reading for the combined score was 55.7, up from 54 last month. The last time this reading was this high was in November of last year when it hit 55.8. The index of favorable factors rose pretty dramatically from 60.1 in April to 63.8 in May. Again, the last time numbers were this good was November 2018. There was not a dramatic improvement as far as the unfavorable factors, but they still had a small rise from 50 to 50.2.

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Metals & Manufacturing Outlook / June 2019

There was even better news in the breakdown for each sector. The sales category jumped from 61 to 65.9, a reading as good as those seen last year when numbers averaged in the high 60s (May at 69.6, June at 69.6, July at 63.9, August at 65, September at 68.8). The reading for new credit applications shifted up as well from 59.7 to 64.2 (the highest point in a year). The data on dollar collections moved from 59.1 to 59.8—not a big improvement, but very solidly in the expansion zone (a reading above 50). The amount of credit extended also saw a tidy gain (60.6 to 65.4)—as high as that nice set of readings in November of last year.

There was generally good news for the nonfavorables, but the changes were not quite as dramatic. The rejections of credit applications reading fell a little but remained in the expansion zone. It was at 52 and slipped slightly to 51.8.

The accounts placed for collection also fell a bit—from 48.5 to 47, which could become a bit of a concern. “This is essentially the last stage for credit and signals that something more drastic may be coming, such as bankruptcy,” Kuehl said.

The disputes category stayed almost the same as it had been the previous month as it went from 48.5 to 48.6. The big improvement was in dollar amount beyond terms. It had been at 47.6 and this month it tracked at 51.3. He noted that in contrast to the news on accounts placed for collection, this reading suggests some companies are catching up with their credit obligations. The dollar amount of

CREDIT MANAGERS’ OUTLOOK customer deductions remained very close to last month’s readings with a score of 49.3 compared to 49.7 in April. The filings for bankruptcies reading also remained close to what it had been the month before (53.9 to 53.3).

“The Purchasing Managers’ Index this month fell pretty dramatically (and the New Orders Index fell even further), but both remained solidly in the expansion zone above 50,” Kuehl said. “The readings from the CMI suggest that there may be less gloom ahead than might be indicated by the PMI as the favorable numbers all tracked strongly positive. The two indices seem to agree on current conditions and indicate that many companies are struggling with some of the economic headwinds related to trade concerns and a slower-spending consumer.”

Manufacturing Sector Last month, the manufacturing sector slipped a little while the service sector experienced some growth. Kuehl explains that the primary reason there was a hitch in the manufacturing sector is thought to be the issues of a trade war and the potential impact on U.S. exports and imports.

There has also been some concern regarding a slip in consumer confidence given there continues to be confidence in the job market. The numbers from the latest Purchasing Managers’ Index have been far weaker than was the case just a few months ago, but they are still in the expansion zone. The changes in the CMI have been far more subtle. The combined score for the manufacturing sector was 55.4 this month as compared to 53.7 last month. This is the highest reading notched since November of last year when it hit 55.6. The index of favorable factors rose sharply and jumped back into the 60s with a reading of 63.1 after last month’s 58.9. The last time this reading was that high was in November of last year. The index of unfavorable factors rose very, very slightly from 50.2 to 50.3, but the important note is this reading is still in expansion territory, if by the narrowest of margins.

The data from the favorable category was quite positive this month with all of the readings in the 60s. The sales mark reached 63.3 after sitting at 58.6 in April. This is the highest level reached since last November when it hit 64.2. The new credit

applications also moved back into the 60s with a reading of 63.9, up from 59.8. The dollar collections data improved from 58.6 to 60.5 and there was a similar move from the amount of credit extended as it went from 58.5 to a whopping 64.6. The last time this reading was this high was (surprise!) in November. Last month, all the readings were in the 50s and this month all are back in the 60s noted Kuehl.

The data from the nonfavorable categories is not quite as good, but there is nothing catastrophic.

The rejections of credit applications shifted down slightly from 53.1 to 52.5, but remained in the expansion zone. The accounts placed for collection also slipped, but only by a small amount (49.3 to 49). The category is still below 50 where it has been since February. The disputes category improved, but stayed in contraction territory as it moved from 47.7 to 48.2. The dollar amount beyond terms broke away from the contraction zone with a reading of 51.8 after 48.5 the month before. Kuehl said that it is a good sign that slow pays have not been quite the issue they had been.

The dollar amount of customer deductions slipped deeper into contraction territory with a reading of 48.4 as compared to last month at 49.5. This category has not been out of the contraction zone for almost three years at this point. Filings for bankruptcies skidded a bit, but stayed in expansion territory as it moved from 53.3 to 52.

Kuehl sums up the manufacturing sector, “There has seen some mixed activity of late as there have been government moves that have been a clear benefit to some sectors and a clear inhibition to others. The steel and aluminum tariffs have been good for producers of the metal, but not great for users. The tariffs on China have been good for some of those that compete with Chinese firms, but bad for those that source from China or those that sell to China and are encountering their retaliatory tariffs and restrictions.”

Metals & Manufacturing Outlook / June 2019

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NORTH AMERICAN OUTLOOK

JUNE 2019

NORTH AMERICAN OUTLOOK

by ROYCE LOWE

The Institute for Supply Management PMI figure eased back from 52.8 in April to 52.1 in May. New orders and employment are growing faster; production is growing slower; supplier deliveries are slowing slower; inventories are growing slower and customer inventories are too low.

Order backlogs are contracting.

Of the 18 manufacturing industries, 11 reported growth in May, in the following order: Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; Textile Mills; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Computer

Products; and Machinery. The six industries reporting contraction in May — listed in order — are: Apparel, Leather & Allied Products; Primary Metals; Petroleum & Coal Products; Wood Products; Paper Products; and Fabricated Metal Products.

Comments from the manufacturing industry continue, in general, despite all, in a fairly optimistic vein, but there are concerns regarding both tariffs and a slowdown of supplier deliveries due to problems at the Mexico/U.S.border.

There are still complaints regarding a tight labor situation, and weather has caused a problem

& Electronic Products; Chemical Products; Food,

on construction projects. Some companies are

Beverage & Tobacco Products; Nonmetallic Mineral

shifting business from China to Mexico.

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Metals & Manufacturing Outlook / June 2019

NORTH AMERICAN OUTLOOK Commodities Up in Price Aluminum*; Dairy Products; Electronic Components (10); Integrated Circuits; Nylons; Printed Circuit Board Assemblies; Solvents; Steel* (9); and Steel Products*.

Commodities Down in Price Aluminum* (2); Caustic Soda (2); Memory; Natural Gas; Polypropylene (3); Scrap Metal; Soybean Products; Steel*; Steel — Hot Rolled (2); and Steel Products* (5).

Commodities in Short Supply Aluminum Products (3); Capacitors (2); Electronic Components (13); and Integrated Circuits.

The number of consecutive months the commodity is listed is indicated after each item. * refers to both up and down in price.

CANADA’s manufacturing PMI fell a little further into contraction territory in May with both production and new orders - domestic and export - down. The PMI was down in May at 49.1 from April’s 49.7.

Companies are still optimistic regarding future production. All regions report deteriorating business conditions, with Ontario reporting the sharpest downturn.

Canadian light vehicle year-over-year sales fell for the 15th consecutive month, by 5.8 percent in May, from 215,972 units to 203,343 units. FCA Canada was down 25.4 percent; GM down 13 percent and Ford down 1.6 percent. Honda was down 5 percent; Hyundai-Kia up 3.9 percent; Toyota Canada up 9 percent, Lexus up 9.5 percent; VW up 6.6 percent and Nissan up 1.8 percent.

MEXICO’s new order growth was sustained and there was renewed growth in employment and production. The PMI was at 50.1 in May, unchanged from the April figure.

There were material shortages and the average delivery times lengthened for the sixth consecutive month. Input costs were up on chemicals, foodstuff, metals and plastics.

ISO9100:2015 and AS9100D

Metals & Manufacturing Outlook / June 2019

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METALS OUTLOOK

JUNE 2019

METALS OUTLOOK THE COST, MAKING, TREATING AND APPLICATIONS OF METALS

by ROYCE LOWE STEEL PRODUCTION CONTINUES TO RISE. World crude steel production for the 64 reporting countries – which represent 99 percent of world crude steel production – was at 156,671 MT for the month of April, and up 6.4 percent year-over-year.

Primary Global Aluminum Production in April 2019 was reported at 5.203 million tons, with production in China, at 2.940 million tons, representing 57 percent of world total. Production was 434,000 tons in GCC; 361,000 tons in the rest of Asia; 286,000 tons in Western Europe; 318,000 tons in North America and 339,000 tons in Eastern and Central Europe.

U.S. crude steel production for April 2019 was 7.428 MT, up 7.3 percent year-over-year. Canada produced 1.120 MT of crude steel in April, up 1.0

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Metals & Manufacturing Outlook / June 2019

percent year-over-year. Mexico produced 1.600 MT of crude steel in April, down 8.2 percent yearover-year. The UK produced 0.644 MT of crude steel in April, down 15.1 percent year-over-year.

Brazil’s crude steel production for the month of March was 2.886 MT, a decrease year-over-year of 1.9 percent.

China’s crude steel production was up a whopping 12.7 percent year-over-year, at 85 million tons.

CHINA produced 85.032 MT of crude steel in April, up 12.7 percent year-over-year; Japan 8.647 MT, down 0.8 percent year-over-year; India 8.785 MT, up 1.5 percent year-over-year and South Korea 5.978 MT, up 1.4 percent year-over-year. Taiwan produced 1.930 MT in April, down 5.0 percent.

Not too long ago, the steel industry was enjoying halcyon days, particularly in the U.S., where

METALS OUTLOOK Trump’s tariffs made it very worthwhile for U.S. mills to put up their prices, increase their production and even talk of re-opening plants that had not too long before been shut down. Trump’s tariffs spread beyond steel, threatening the global economic order and significantly reducing demand for manufactured products. The global automotive market fell in 2018 and looks set to fall further this year.

the first half of 2019.

The price of steel has, to say the least, taken a tumble. In January 2017, hot-rolled coil in the U.S. was priced at just under $620 per ton; in July 2018, with Trump’s tariffs in effect, the price was just over $910 per ton; in June 2019 the price of hotrolled coil is just over $570 per ton.

High labor and energy costs, coupled with the possibility of tariffs (from Brexit) for European customers, were said to be largely responsible for the company’s demise. The company produced 2.8 million tons per year, about a third of the country’s total, and employed 5,000 workers. This is a hit to Britain’s heavy industry.

ArcelorMittal will cut primary production in France, Germany and Spain. The company announced output cuts twice in May, and in total this could affect 10 percent of the company’s EU production. It is being termed a “temporary measure that will be reversed when market conditions improve.” There has been a slump in demand from Germany’s auto industry and the availability of cheap imports into Europe.

The two recent announcements could affect 4 - 4.5 million tons of Arcelor’s production on an annualized basis. These are preliminary figures and the timing of the cuts is flexible, depending on the market, with the majority of the cuts to take effect at the end of 2019. In 2018, ArcelorMittal produced 44.7 million tons of steel in Europe, almost half its global production.

ArcelorMittal received European Commission (EC) approval for the sale of several steelmaking assets to Liberty House Group. Assets included within the divestment package are ArcelorMittal Ostrava (Czech Republic), ArcelorMittal Galati (Romania), ArcelorMittal Skopje (Macedonia), ArcelorMittal Piombino (Italy), ArcelorMittal Dudelange (Luxembourg) and several finishing lines at ArcelorMittal Liège (Belgium). According to Liberty House, the acquisition will make the company Europe’s third-largest steel producer.

The transaction is expected to close by the end of

British Steel, so named by Greybull Capital who created it in 2016, was put into liquidation recently, after last-minute pleas for a government rescue and pressure to nationalize failed to bear fruit. The company was formed by purchasing assets from Tata Steel in Scunthorpe in North Lincolnshire, an area that voted 66 percent in favour of leaving the EU.

China is retaliating in the trade war with rare earths, those metals of which China produces around 80 percent of U.S. supplies. They’re used in smartphones, electric vehicles, and wind turbines, and are also a critical part of the F35 fighter jet. It is generally considered that China will use this card in the trade game, particularly since it knows that it’s cheaper for the U.S to import the materials from China than to produce them domestically in the U.S. The rare earths are, not surprisingly, excluded from the U.S. tariff list. China accounts for around 70 percent of global production of rare earths and 40 percent of the world’s reserves.

Carlyle Group, a multinational private-equity group, has made an offer for Italy’s Forgital Group, reportedly in the range of 900 - 950 million euros (est $1 – 1.06 billion.)

Forgital produces hot-rolled rings and largerdimension die forgings in steel and specialty alloys, for civil aerospace, oil and gas, power transmission and generation, and general industrial use.

Recent price spreads for non-ferrous metals are: copper from $ 2.77 per lb. in early May to $ 2.62 early June; aluminum from $ 0.80 in early May peaking at 1.10 late may and back to 0.79 in early June; nickel dropped from $ 5.32 in early May to $ 5.28 in early June and zinc fell from $1.238 in early May to $1.19 in early June.

Metals & Manufacturing Outlook / June 2019

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AEROSPACE OUTLOOK

JUNE 2019

AEROSPACE OUTLOOK

by ROYCE LOWE

Boeing Co. continues to run into problems with its 737Max aircraft. In addition to the planes grounded as a result of the two fatal crashes, there are now reports that a number of planes have a problem with wing parts. Boeing has informed the Federal Aviation Administration that a wing part may have been improperly manufactured and may pose a safety risk.

The FAA plans calling for 737 operators worldwide to check and identify whether defective parts were installed, and to replace them as required.

The wing parts were made by a supplier to Spirit AeroSystems Holdings Inc. - a major supplier to Boeing.

Boeing has identified defective parts, and while all 737s must be inspected, 20 Max and 21 NG, Next Generation - predecessor to the Max - are said to be most likely to have had defective parts installed.

It’s not, however, all bad news for Boeing these days. The company has been negotiating one of the biggest orders ever of wide-body jetliners with Chinese airlines - in the midst of growing tensions between the U.S. and China, according to “people familiar with the subject.” The deal would involve supply of some 100 twin-aisle jets, 787 Dreamliners and 777X. “The people”

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Metals & Manufacturing Outlook / June 2019

caution that no deal is imminent, citing the trade war as a major complication for all involved.

China is looking to become a major player in the production of wide-body jets, but its first model is at least eight years away. In the meantime Boeing and Airbus will split the business and the company that gets the lion’s - or dragon’s - share may be the company whose country is not in a trade war with China.

As reported here last month, Mitsubishi Heavy Industries Ltd. is keen to get into the regional jet business, and was testing a new airliner. It was reported in early June that MHI was in serious discussion with Bombardier Inc. with a view to purchasing the Canadian company’s CRJ regional jet program. An agreement, subject to due diligence by MHI, may be announced sometime during the Paris Air Show, which opened mid-June.

A deal would effectively put Bombardier out of the commercial aircraft business, leaving the company making private jets and rail equipment.

Some 1,500 CRJ planes are in service worldwide.

In the event of a deal, MHI would be the biggest challenger to Embraer’s commercial-plane business, presently being absorbed by Boeing Co. As mentioned last month, MHI’s efforts to build its own regional jet were fraught with problems.

Acquisition of Bombardier’s program may well put it on the regional aviation map.

AUTOMOTIVE OUTLOOK

JUNE 2019

AUTOMOTIVE OUTLOOK

by ROYCE LOWE

Closures and layoffs, a new electric vehicle, tariffs that may or may not be levied and companies not being appreciated. This is just some of the automotive news this month, along with an idea of where the global market for cars might be headed.

Oh, and a new plant in Mexico.

Ford will close an engine plant in South Wales, by 2020, with 1,500 job losses, along with other plants in Germany, France and Russia. This is all part of Ford’s $11 billion restructuring program.

The company is also laying off 7,000 salaried employees, some 10 percent of its white-collar workforce, which will bring annual savings of $600 million. There have been terrible outcries from labor unions in South Wales, UK. Ford will concentrate its European operations on the manufacture of commercial vans and pickups.

James Dyson, the vacuum cleaner man, has recently let out information on the electric vehicle he first announced some time ago. First patents have been applied for, but there are no photos or ideas of prices. It will have a long wheel base and be aerodynamic. The car’s birth is planned for Singapore in 2021. Some 500 people are employed in development and production of the new vehicle.

Meanwhile, Toyota rebuked Trump’s statement regarding the security risk threat from imported cars and components, and sent out a tougherthan-normal message stating that Trump’s move along these lines “sends a message to Toyota

that our investments are not welcomed, and the contributions from each of our employees across America are not valued.” Toyota has spent over $60 billion building its operations in the U.S., including 10 manufacturing plants.

This is Trump’s ploy to try to persuade Americans to buy cars manufactured in America. If such cars were of equivalent quality to imports, there would be no issue.

And still speaking of imports, BMW just opened a new plant in Mexico to manufacture its 3 series “for the world.” Lucky for BMW that Trump changed his mind about levying tariffs on imports from Mexico.

Threatened tariffs on European and Japanese cars, at 25 percent, if levied in some 180 days, would add 10,000 euros ($11,230 USD) to the cost of such cars. That might persuade Americans to buy American cars. The whole thing is, incidentally, against WTO rules.

Global light vehicle sales fell 0.5 percent in 2018 to 94.8 million units, the first annual drop since 2009.

A further 0.3 percent drop is predicted for 2019, but a faster than expected drop in the Chinese market may have a more negative impact. There have been around 40,000 job cuts in the global auto industry in the past six months, in China, the UK, Germany, Canada and the U.S. Metals & Manufacturing Outlook / June 2019

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SAFETY OUTLOOK

THREE WAYS SIGNAGE CAN IMPROVE WORKPLACE SAFETY Reprinted with permission from the American Society of Safety Professionals, assp.org

We may not often think about it, but signs play an important part in keeping us safe during our day-to-day lives. They tell us when to stop at an intersection, if there is construction work ahead or when it’s safe to cross the street.

The same goes for the workplace. Signs play a huge role in telling workers what hazards are present and how they avoid those dangers.

To be most effective, these signs must be understandable so that workers will know what to do to stay safe in different work environments.

“Although safety signs and warnings are low on the hierarchy of controls, they are an important part of communicating with employees about the hazards in the workplace,” says Diana Stegall, executive vice president of Rivendell Safety Consulting. “Signs that are well-positioned and take into consideration the hazard ‘audience’ can be very effective in communicating a hazard and serving as a reminder when no one else is around.”

These three steps can help you ensure that signs in your facility help employees understand the risks present in different environments.

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Metals & Manufacturing Outlook / June 2019

SAFETY OUTLOOK Speak the Language of Safety Signage needs to easily and effectively communicate its message to everyone on the job site. Without a clear understanding of the hazards present in different working environments, workers don’t have the knowledge necessary to operate safely. “The purpose of a safety sign is to give people the information they need to act safely, and to provide that information when and where it’s needed,” says Brian McFadden, compliance specialist at Graphic Products. “If you keep that goal in mind, the regulations and standards for signage become how-to guides and help you make improvements to your workplace communication in the name of safety.”

With regard to regulations, the ANSI/NEMA Z535 series of standards establishes requirements for the design, application and use of safety signage.

This includes color coding, sign size, text size and viewing distance. For example, the standard states that yellow be incorporated in signage where minor or moderate hazards are present, orange for more serious hazards and red for the most severe hazards.

Using these as a foundation for safety signage, employees begin to understand and recognize the types of hazards associated with different types of machinery and environments.

Along with the Z535 requirements, Stegall stresses that employers, safety professionals and others need to consider the “audience” for each sign, which means thinking about the demographics of their workforce.

It’s important to know that literacy rates vary from worker to worker and that not all workers may speak the same language. Therefore, signs should be easily understood in whatever language(s) are spoken in the workplace.

“When multiple languages are used in a workplace, signs featuring all those languages are a common solution,” says McFadden. “Many signs are available in bilingual formats and custom signs can be created with any selection of languages.”

Location, Location, Location A sign is only truly effective if it is appropriately placed on a worksite. This includes both the location of signage on machinery as well as ensuring that signage is placed outside of a hazardous work area well enough in advance for workers to be aware and take proper precautions.

“Signage should be positioned close enough to a

hazard so that it is relevant, but not so close that employees enter a potentially dangerous area before seeing the sign,” says Stegall. “Ask yourself, ‘Is the sign positioned close enough to the hazard that it is relevant, but not so close that the employee is entering a potentially dangerous area before they will see the sign?’”

Avoid Mixed Messages While signage is an important element of workplace safety culture, Stegall emphasizes that there can be too much signage and safety professionals need to be mindful of that in their work environments.

“You don’t want to have so many signs that the warnings blend together,” she says. “Having one safety sign after another or signs that contradict each other since they warn of different hazards can create confusion among your workers.”

McFadden encourages employers to focus on consistency across the job site. This means if similar signage is needed in multiple places, the messaging of those signs should be conveyed in similar ways. This help workers quickly understand the context of any given sign. “It’s easy to go overboard with signage,” says McFadden.

“Before posting any new sign, think about its purpose. What information, specifically, needs to be provided? If you post a new sign in a given location, will its message be relevant, timely and actionable when a worker reads it?”

Above all, McFadden emphasizes the importance of viewing safety signage as just one component of a safety and health management system and how effective communication fits in with your overall workplace safety culture.

“Signage is an important part of the overall safety puzzle, but it’s just one piece. No sign, on its own can make your workplace safer in practice,” he says. “Building a safe workplace culture requires commitment and participation at every level of the organization.”

Metals & Manufacturing Outlook / June 2019

17

ISSUES OUTLOOK

JUNE 2019

ISSUES OUTLOOK

by ROYCE LOWE

In view of the relatively small number of jobs created in the month of May, and the average number per month for 2019 compared to 2018, it is interesting to cast an eye on the findings of a recent survey by SCORE, that nonprofit organization that provides free business mentoring services to prospective and established small businesses in the U.S. More than 10,000 volunteers provide these services, with all volunteers being active and retired business executives and entrepreneurs. SCORE is a resource partner with the U.S. Small Business Administration.

According to a recent survey released by SCORE, in 2018, small manufacturers generated 11.6 percent of U.S. economic output and employed 8.5 percent of its workforce, yet 89 percent of these small businesses can’t find suitable employees. The survey states that 98.6 percent of American manufacturing companies are small businesses and that 75.3 percent of these businesses have fewer than 20 employees. The reasons given for this inability to find employees were threefold, namely shifting skill sets due to advancing technologies; misperceptions of manufacturing jobs, and the retirement of baby boomers.

It’s for sure that we can’t stop baby boomers from retiring, at least if they want to. Perhaps there are many out there who would be willing and able to carry on working and making money and feeling they counted for something. The other two reasons seem to be old-hat and perhaps surprising, coming from such a survey by such a group.

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Metals & Manufacturing Outlook / June 2019

Small companies represent these percentages of total employment for the following products: 22.9 percent for apparel; 18.4 for furniture and related products; 16.4 of fabricated metal products; 15.2 of wood products; 11.5 of beverage and tobacco products; 8.6 of machinery; 6.3 of food; 5.6 of electrical equipment, appliances & components; 5.3 of plastics and rubber; 5.1 of computers and electronic products and 2.8 of paper products.

This survey seems to be pointing to questions that have been asked and answered on numerous occasions. Why don’t more (young) people go into manufacturing, and once they are in there, who is responsible for guiding them through what they need to know and do to be a contributing and contented employee? The words apprentice and apprenticeship have been bandied around for years in the U.S. and on occasion, thanks largely to schemes brought from countries like Germany, Switzerland and Austria, apprenticeship schemes have been made to work. It takes knowledge, dedication and very close cooperation with local seats of learning.

There is no magic, simple answer to this problem.

Skilled employees are required in small, mediumsized and large companies. It takes work and dedication and patience, but it can be done, and it must be done.

ENERGY OUTLOOK

JUNE 2019

ENERGY OUTLOOK

by ROYCE LOWE

Hydro-Quebec has power to spare, and is looking to increase its profits. Last year, export sales accounted for almost 30 percent of Hydro-Quebec’s net profits of $C 3.2 billion. The power utility is fed by what is known as the James Bay project, which dates from the early seventies, and which gives Hydro-Quebec power to the extent that its customers in the province enjoy North America’s lowest power costs. James Bay gives water power to spare, and if it dries up, we’ll know we’re in real trouble. But there’s lots to spare, and Francois Legault, Quebec’s premier, is looking to Quebec as North America’s ‘Green Battery.’

For the first time in 30 years, Quebec’s power utility, Hydro-Quebec, is getting nearer to signing agreements to create two major transmission lines into the northeastern U.S. There is interest from New York, Vermont and Massachusetts, but of course the big deal would come from New York,

where Mayor De Blasio sees the answer to his quest to reduce greenhouse emissions and reduce some of the highest energy costs in North America.

De Blasio said in late April that he wants all public infrastructure in his city fed by “zero-emission Canadian hydroelectricity as part of his climate action plan that would reduce greenhouse gas emissions by 40 percent of 2005 levels by 2030.

He wants a deal signed by 2020 and juice to start flowing by 2025.

This project has been around since 2008. The transmission lines would be run underground and water for 530 kilometres (330 miles), which would supply 8.3 terawatt hours of power, sufficient to power the entire state of Vermont, population 620,000, with green energy. This would represent a quarter of all the power Quebec exported in 2017.

These lines would come at a good time for HydroQuebec, which has surplus power it can’t use and a Quebec market that is flat. At the same time, when electricity demands are at their peak in new England for summer air conditioning and winter heating, the existing transmission lines are at full capacity.

This project looks good for Quebec, for New York and New England, and in the long run, for the planet.

Metals & Manufacturing Outlook / June 2019

19

GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS Survey data from around the world continues to identify a trend of slowing growth, particularly in manufacturing. The ISM Manufacturing PMI recorded its lowest reading in May since October 2016. As manufacturing has more leading properties, concerns about near-term growth persists.

The non-manufacturing sector is strengthening in the U.S. Non-manufacturing typically outperforms manufacturing in this part of the U.S. business cycle by at least two percentage points. Also, the contribution of services is four times greater than that of manufacturing. The strength of New Orders and

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Metals & Manufacturing Outlook / June 2019

Business Activity in non-manufacturing is more than enough to carry the U.S. through this soft patch in manufacturing.

Eurozone: The Eurozone PMI (47.7, -0.2) contracted for the fourth consecutive month in May. There is less of a divide between expansion and contraction in the EZ this month: Greece (54.5, -2.1) and Netherlands (52.2, +0.2) strengthened; France (50.6, +0.6) and Spain (50.2, -1.6) were at the mid-point; Italy (49.5, 0.4), Austria (48.3, -0.9), and Germany (44.3, -0.1) declined.

Germany registered its fifth consecutive month below 50!

United Kingdom: The UK/CIPS PMI (49.4, -3.7) fell into negative territory and ended its 33-month expansion.

It appears that the uncertainty surrounding BREXIT has finally slowed the manufacturing sector.

China: China’s Official Report, the CFLP PMI (49.4, -0.7), and the Caixin Manufacturing PMI (50.2, 0.1) remain anchored near the mid-point.

India: India’s PMI (52.7, +0.9) expansion continued for its 22nd consecutive month. May improved on April’s weak start to Q2 as it fell just under the 12-month average (52.8).

GLOBAL PMI OUTLOOK

South Korea: The PMI (48.4, -1.9) fell back into contractionary territory in May. The PMI had ended five consecutive months of contraction in April. Low business confidence prevails.

North America: Canada’s PMI (49.1, -0.6) contracted for a second consecutive month after 37 consecutive months of growth dating back to March 2016. Mexico’s PMI (50.0, 0.0) held at the critical 50-mark again.

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Metals & Manufacturing Outlook / June 2019

21

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE

by ROYCE LOWE

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) continued in contraction for the fourth consecutive month, with the May PMI easing back a little from April’s 47.9 to 47.7. There was continuing decline in new orders, both domestic and export, and in production. There was weakness in intermediate and investment goods, but modest growth in the consumer goods category. There was expansion in consumer goods, but continuing weakness in intermediate and investment goods. Following 56 months of continuous employment expansion, a net fall in payroll numbers was recorded in May. Business confidence recovered somewhat in May, but is still well down on the long-term average.

Input buying, inventories are all now in decline, and the manufacturing sector is going through its toughest time since 2013.

Crude steel production in Germany in April was at 3.358 MT, down 8.7 percent year-over-year; in Italy 1.950 MT, down 5.7 percent year-over-year; in France 1.288 MT, down 8.1percent year-over-year and in Spain 1.288 MT, down 4.4 percent year-overyear.

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Metals & Manufacturing Outlook / June 2019

Russia’s crude steel production for April was at 5.600 MT, down 8.3 percent year-over-year; Ukraine’s was 1.938 MT, up 12.6 percent year-overyear.

Western European car sales were down 0.3 percent year-over-year in May, with Germany up 9.1 percent, France up 1.2 percent, Spain down 7.3 percent and Italy down 1.2 percent. The UK was off 4.6 percent.

IHS Markit’s PMI for the UK was in contraction in May for the first time since July 2016, falling to 49.4 from April’s 53.1. New orders and employment were down as stockpiling was halted following a Brexit date delay. Manufacturers reported lower demand from Asia and Europe, due to Brexit uncertainty, with clients diverting supply chains away from the UK, thus leading to lower demand from within the EU.

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by ROYCE LOWE

CHINA’s operating conditions showed a further slight improvement in May, with total new orders up at a faster pace, including a renewed increase in export sales. Production was mostly stable and backlog continued to expand. There was an increase in purchasing activity for the first time in 5 months. There is cautious optimism in China.

May’s PMI was unchanged from April at 50.2.

JAPAN, after a month out of contraction, returned in May, reporting a PMI of 49.8. Domestic and export demand was down, and the hiring rate slowed amid production cutbacks. Future production expectations are negative for the first time since 2012. There are still supply chain pressures, with delivery times lengthening.

Passenger car sales in China were off 14.6 percent year-over-year in April, at 1.98 million units. The government will require all light vehicles to adhere to tougher China VI emission standards by 2020 as part of efforts to combat pollution. Sales of NEVs (New Energy Vehicles) were up in April to 97,000 units.

INDIA saw a faster expansion in production and new orders, with input purchasing and employment up. May’s PMI, at 52.7, was up from April’s 51.8. There is business optimism.

Consumer goods led the way up in May, with expansion rates in production, total sales, new exports and employment outperforming those seen in both intermediate and investment goods categories. Employment in Indian manufacturing has risen in each month since April 2018.

Metals & Manufacturing Outlook / June 2019

23

CNC MACHINING: THE COMPLETE ENGINEERING GUIDE PART 4

CNC MACHINING: THE COMPLETE ENGINEERING GUIDE PART 4 OF A 6 PART SERIES:

by 3D HUBS

Cost Reduction Tips

3D Hubs make on-demand manufacturing easy, from prototyping to production. Their online service provides readily available production capacity for the fastest lead times and most price-competitive parts.

Simply upload your designs to get instant quotes for 3D printing, CNC machining, and Injection Molding. Our automated Design for Manufacturing (DFM) analysis detects any potential issues before production begins. Taking the risk out of manufacturing.

Founded in 2013, 3D Hubs has since produced more than 2,000,000 parts, serving engineering companies big and small.

24

Metals & Manufacturing Outlook / June 2019

CNC MACHINING: THE COMPLETE ENGINEERING GUIDE PART 4

PART 4 COST REDUCTION TIPS - LEARN MORE ABOUT WHAT AFFECTS THE COSTS IN CNC MACHINING. USE THESE THREE ACTIONABLE DESIGN TIPS TO CUT THE PRICE IN HALF AND YOU KEEP YOUR PROJECT ON BUDGET.

Tips to keep your CNC project on budget The cost of CNC machined parts depends on the following: 1. Machining time & model complexity: The more complex the geometry of a part is, the longer it takes to machine and the more expensive it will be.

2. Start-up costs: These are related to CAD file preparation and process planning. They are significant for smaller volumes but are fixed. There is an opportunity to reduce the unit price by taking advantage of economies of scale.

3. Material cost & finishes: The cost of the bulk material and the ease with which that material can be machined greatly affect the overall cost.

As a rule of thumb:

To minimize the cost of CNC machined parts, stick to designs with simple geometries and standardized features.

In the next sections, we re-examine some of the design rules we visited previously with costreduction in mind. With these 3 design tips, you can drastically reduce the cost of your CNC machined parts.

Metals & Manufacturing Outlook / June 2019

25

CNC MACHINING: THE COMPLETE ENGINEERING GUIDE PART 4

Tip #1: Increase the size of all fillets or add undercuts to sharp edges

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Metals & Manufacturing Outlook / June 2019

CNC MACHINING: THE COMPLETE ENGINEERING GUIDE PART 4

Tip #2: Minimize the number of machine orientations

Metals & Manufacturing Outlook / June 2019

27

CNC MACHINING: THE COMPLETE ENGINEERING GUIDE PART 4

Tip #3: Consider the cost of the material

In Next Month’s Issue: Part 5: Start CNC Machining 28

Metals & Manufacturing Outlook / June 2019

SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA

by ROYCE LOWE

BRAZIL saw a fractional improvement in May, with a soft production expansion, renewed new orders decline and job shedding. Inflationary pressures were stronger and the business sentiment was the weakest in over 18 months. The PMI in May retreated from April’s 51.5 to 50.2.

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) – eased into contraction in May to 49.8 from April’s 50.4 reading, its lowest since October 2012.

Business conditions deteriorated to the greatest extent in over 6-1/2 years, as production stagnated and new orders dropped faster than at any time since October 2012. New export business contracted for the ninth consecutive month, and business optimism fell to its lowest level since future activity data was first used in July 2012.

Downturns in intermediate and investment goods sectors continued and production and new orders fell further in May. The consumer goods sector fared better with improvements in production and new orders, but at slower rates. Global manufacturing employment eased to register its first decline since August 2016.

Business conditions deteriorated in the Eurozone, Japan, the UK, Canada, South Korea and Taiwan. PMIs for the U.S., China and Brazil were not much above the fifty mark, and in fact, the U.S. figure was the main reason for the slowdown in global manufacturing.

Metals & Manufacturing Outlook / June 2019

29

ISM REPORT OUTLOOK

THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS BREAKING NEWS

ISM PMI at 52.1% for April ISM PMI for the past 5 years

2014

30

2015

Metals & Manufacturing Outlook / June 2019

2016

2017

2018

2019

ISM REPORT OUTLOOK

ISM® REPORT ON BUSINESS®

MANUFACTURING E

conomic activity in the manufacturing sector expanded in May, and the overall economy grew for the 121st consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The May PMI® registered 52.1 percent. The New Orders Index registered 52.7 percent, an increase of 1 percentage point from the April reading of 51.7 percent. The Production Index registered 51.3 percent, a 1-percentage point decrease compared to the April reading of 52.3 percent. The Employment Index registered 53.7 percent, an increase of 1.3 percentage points from the April reading of 52.4 percent. The Supplier Deliveries Index registered 52 percent, a 2.6-percentage

MAY 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® Manufacturing Business Survey Committee

point decrease from the April reading of 54.6 percent. The Inventories Index registered 50.9 percent, a decrease of 2 percentage points from the April reading of 52.9 percent. The Prices Index registered 53.2 percent, a 3.2-percentage point increase from the April reading of 50 percent. Of the 18 manufacturing industries, 11 reported growth in May, in the following order: Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; Textile Mills; Miscellaneous Manufacturing ‡; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; and Machinery.

PMI @ 52.1% ®

‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

MANUFACTURING AT A GLANCE May Index 52.1 52.7 51.3 53.7 52.0 50.9 43.7 53.2 47.2 51.0 49.4

Apr Index 52.8 51.7 52.3 52.4 54.6 52.9 42.6 50.0 53.9 49.5 49.8

% Point Change -0.7 +1.0 -1.0 +1.3 -2.6 -2.0 +1.1 +3.2 -6.7 +1.5 -0.4

Growing Growing Growing Growing Slowing Growing Too Low Increasing Contracting Growing Contracting

Rate of Change Slower Faster Slower Faster Slower Slower Slower From Unchanged From Growing From Contracting Faster

Trend* (months) 33 41 33 32 39 17 32 1 1 1 2

OVERALL ECONOMY

Growing

Slower

121

Manufacturing Sector

Growing

Slower

33

Index PMI® New Orders Production Employment Supplier Deliveries Inventories Customers’ Inventories Prices Backlog of Orders New Export Orders Imports

Direction

*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

2019

52.1%

50% = Manufacturing Economy Breakeven Line 42.9% = Overall Economy Breakeven Line

PMI® Manufacturing expanded in May, as the PMI® registered 52.1 percent, a decrease of 0.7 percentage point from the April reading of 52.8 percent. This is the lowest reading since October 2016, when the index registered 51.7 percent. This indicates growth in manufacturing for the 33rd consecutive month. The PMI® continued a period of expansion softening that began in August 2018. Softening this month was primarily due to inputs — supplier deliveries and inventories. Three of the big six industries expanded.

COMMODITIES REPORTED Commodities Up in Price: Aluminum*; Dairy Products; Electronic Components (10); Integrated Circuits; Nylons; Printed Circuit Board Assemblies; Solvents; Steel* (9); and Steel Products*.

Commodities Down in Price: Aluminum* (2); Caustic Soda (2); Memory (2); Natural Gas; Polypropylene (3); Scrap Metal; Soybean Products; Steel*; Steel — Hot Rolled (2); and Steel Products* (5).

Commodities in Short Supply: Aluminum Products (3); Capacitors (2); Electronic Components (13); and Integrated Circuits.

Metals & Manufacturing Outlook / June 2019 31

12

Note: The number of consecutive months the commodity is listed is indicated after each item. *Reported as both up and down in price.

JUNE | JULY 2019

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

May 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

2019

52.7% 52.5% = Census Bureau Mfg. Breakeven Line

New Orders ISM’s New Orders Index registered 52.7 percent. Of 18 manufacturing industries, 12 reported growth in new orders in May, in the following order: Furniture & Related Products; Printing & Related Support Activities; Plastics & Rubber Products; Computer & Electronic Products; Textile Mills; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing‡; Nonmetallic Mineral Products; Machinery; Chemical Products; Transportation Equipment; and Fabricated Metal Products.

Production (Manufacturing) 2017

2018

2019

51.3% 51.7% = Federal Reserve Board Industrial Production Breakeven Line

Production ISM’s Production Index registered 51.3 percent. The 11 industries reporting growth in production during the month of May — listed in order — are: Furniture & Related Products; Printing & Related Support Activities; Miscellaneous Manufacturing‡; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Transportation Equipment.

Employment (Manufacturing) 2017

2018

2019

53.7% 50.8% = B.L.S. Mfg. Employment Breakeven Line

Supplier Deliveries (Manufacturing) 53.1% 2017

2018

2019

52%

Employment ISM’s Employment Index registered 53.7 percent. Eleven of 18 manufacturing industries reported employment growth in May, in the following order: Textile Mills; Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; Chemical Products; Miscellaneous Manufacturing‡; Electrical Equipment, Appliances & Components; and Machinery.

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations slowed in May, as the Supplier Deliveries Index registered 52 percent. The seven industries reporting slower supplier deliveries in May — listed in order — are: Plastics & Rubber Products; Chemical Products; Miscellaneous Manufacturing‡; Primary Metals; Computer & Electronic Products; Machinery; and Food, Beverage & Tobacco Products.

Inventories (Manufacturing) 2017

2018

2019

50.9%

Inventories The Inventories Index registered 50.9 percent. The six industries reporting higher inventories in May — listed in order — are: Printing & Related Support Activities; Textile Mills; Electrical Equipment, Appliances & Components; Paper Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.

44.3% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

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Metals & Manufacturing Outlook / June 2019

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

May 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

2019

Customers’ Inventories ISM’s Customers’ Inventories Index registered 43.7 percent. The four industries reporting customers’ inventories as too high during the month of May are: Apparel, Leather & Allied Products; Wood Products; Primary Metals; and Electrical Equipment, Appliances & Components.

43.7%

Prices (Manufacturing) 2017

2018

2019

53.2%

Prices The ISM Prices Index registered 53.2 percent. Six of the 18 industries reported paying increased prices for raw materials in May, in the following order: Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Miscellaneous Manufacturing‡; Machinery; and Transportation Equipment.

52.5% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2017

2018

2019

47.2%

Backlog of Orders ISM’s Backlog of Orders Index registered 47.2 percent. The 10 industries reporting growth in order backlogs in May — listed in order — are: Textile Mills; Printing & Related Support Activities; Furniture & Related Products; Nonmetallic Mineral Products; Computer & Electronic Products; Machinery; Paper Products; Plastics & Rubber Products; Fabricated Metal Products; and Chemical Products.

New Export Orders (Manufacturing) 2017

2018

2019

New Export Orders ISM’s New Export Orders Index registered 51 percent. The five industries reporting growth in new export orders in May are: Wood Products; Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing‡.

51%

Imports (Manufacturing) 2017

2018

2019

Imports ISM’s Imports Index registered 49.4 percent. The four industries reporting growth in imports during the month of May are: Wood Products; Miscellaneous Manufacturing‡; Fabricated Metal Products; and Chemical Products.

49.4%

‡Miscellaneous

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

Metals & Manufacturing Outlook / June 2019

33

COVER STORY

UNITED TECHNOLOGIES AND RAYTHEON ANNOUNCE MERGER

by CRAIG ROVERE

A “Merger of Equals” Creates An Aerospace Industry Giant

In one of the largest corporate mergers this year, United Technologies and Raytheon have announced that they have agreed to what they are referring to as a “merger of equals”.

In the announcement made on June 9th, both companies agreed to an all-stock deal that would give United Technologies shareholders a 57% ownership stake in the new company. The new company, which will be called Raytheon Technologies Corporation, will offer “expanded technology and R&D capabilities to deliver innovative and cost-effective solutions aligned with customer priorities and the national defense strategies of the U.S. and its allies and friends,” the company said.

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Metals & Manufacturing Outlook / June 2019

In a press release, Greg Hayes, United Technologies Chairman, and CEO said: “The combination of United Technologies and Raytheon will define the future of aerospace and defense.”

United Technologies is a diverse, industrial company made up of various manufacturers including Otis Elevator, Pratt & Whitney, Carrier building systems and Collins Aerospace. In a move that foreshadowed Sunday’s announcement, United Technologies spun off both Otis and Carrier a few months ago, a move that was clearly intended to help the new company focus squarely on the aerospace sector.

Raytheon is a major U.S. defense contractor and industrial corporation with core manufacturing concentrations in missile defense and cybersecurity systems.

COVER STORY

Putting The Pieces Together United Technologies has been a part of 3 of the top 5 deals in the aerospace industry in the past 10 years. In 2011 they acquired Goodrich Corp. for $18 billion, in September of 2017 they acquired Rockwell Collins for $29 billion and now the merger with Raytheon, valued at over $57 billion. The new company will have approximately $75 billion in sales of their various products including jet engines, missile defense systems and radar technology.

With all of the pieces now in place, United Technologies looks poised to be able to leap ahead in the race to develop connected aircraft.

Avionics from Rockwell Collins combined with the critical cybersecurity component from Raytheon (a huge concern for airlines when digitizing aircraft components) means others including GE, Grumman and Lockheed will need to play catch-up.

General Electric Takes Note Industry analysts agree that the new goliath company will make it difficult for even mid-range aerospace suppliers to compete, forcing a “merge or die” scenario to remain competitive. General Electric in particular has cause for concern. GE has held a dominant position in aircraft engine manufacturing for some time. CFM International, the joint venture with Safran represents a more than 50% share of the jet engine market globally.

The massive cash influx to Pratt & Whitney will allow them to invest heavily in the development of their geared turbofan technology. The threat to GE would be immediate and substantial. GE and Pratt & Whitney are already rumoured to be in competition to build Boeing’s new mid-sized airplane, which Boeing has indicated they would like to launch next year. Upping the ante, Pratt & Whitney President Bob Leduc made it clear that their deal with Boeing would be conditional on Pratt & Whitney being the sole engine provider for the new aircraft.

Investors Watch And Wait All eyes are on Boeing now. The Raytheon/United Technologies deal is now all but complete. What happens next is up to Boeing. As their woes with the 737 MAX continue, it remains to be seen if they will push ahead with the new mid-sized aircraft and which engine will they chose Does Pratt & Whitney get a shot at GE’s business? Time will tell.

Metals & Manufacturing Outlook / June 2019

35

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