Modern Machine Shop

DEC 2018

Modern Machine Shop is focused on all aspects of metalworking technology - Providing the new product technologies; process solutions; supplier listings; business management; networking; and event information that companies need to be competitive.

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2019 Capital Equipment Spending Modern Machine Shop 69 market include new orders, a growing backlog of orders, insufficient capacity to take on new work or a need to replace a machine that often breaks down. These buyers are called marginal simply because they operate on the fringes, rather than at the core of the market. In economics, the term marginal implies "addi- tional," so a marginal buyer is one added to the core set of buyers. Because these core buyers make purchases regardless of economic factors, the marginal/additional buyers have the greatest inf luence on supply and demand, which means they have the greatest inf luence on prices. Who Are These Marginal Buyers? The marginal machine tool buyer is best iden- tified by facility size. In the metalworking industry, large facilities—those with more than 100 employees—typically represent the core set of buyers. These companies have the volume of work and financial resources to consider purchasing new machine tools almost all the time. They also spend strategically, such as when a new product has been launched or a cost-reduction program has been initiated. Conversely, small metalworking facilities— those with 100 or fewer employees—tend to buy machine tools because of an immediate need. Lacking the financial resources of larger facilities, small shops typically buy sporadically and only when they have cash or profits to spend. In fact, the smaller the facility, the more likely it fits this pattern. Because they tend to make less frequent purchases, small metalworking facilities represent the marginal buyers. As a result, their demand exerts the highest influence on machine supply and impacts machine-tool pricing the most. Data from the Gardner Business Index (GBI) and the 2019 Capital Spending Survey by Gardner Intelligence support this theory. The GBI: Metalworking (the economic index for metalworking companies) indicates that the industry has grown for most of the past six years, but the duration and rate of growth was not uniform across all shops. Breaking down the Index by plant size shows that the past six years in the metalworking industry were very different depending on facility size. On average, the largest shops—those with more than 250 employees—grew for most of the past six years. In fact, for most of that time, the growth rate was quite strong. However, in the same period, the story for small shops changes. The smallest shops—those with fewer than 20 CHART 1: The Capital Spending Report projects machine tool consumption of $7.748 billion in 2019, an increase of 11 percent over 2018 spending. This jump follows an increase of 3 percent in 2017 over 2016 and and an increase of 6 percent in 2018 over 2017. 2019 Machine Tool Consumption Projection = $7.748 billion, Up 11% Real Machine Tool Consumption (billions of USD) 1999 2 3 4 5 6 7 8 9 10 2003 2007 2011 2015 2019 Real Machine Tool Consumption Average Machine Tool Consumption

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