Modern Machine Shop

DEC 2016

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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88 MMS December 2016 FEATURE aerospace industrial production, consumer spend- ing on motor vehicles and par ts, and 10-year treasury rates or other financial activity measured over a certain period of time. GBI transformed each of the economic time series it studied in 150 different ways to derive more than 300,000 eco- nomic variables that were then correlated with machine tool unit orders. Using our knowledge of the metalworking industry and statistical anal- ysis tools, we selected the seven variables out of the 300,000 that accounted for almost 70 percent of the variability in machine tool unit orders. Finally, to adjust for the influence of predictable events such as the International Manufacturing Technol- ogy Show (IMTS), the annual end-of-year sales surge and so on, two "seasonal" modeling factors were added to push the model's correlation with actual unit orders up to more than 90 percent. Based on this model, GBI forecasted in July that machine tool unit orders would be down 14.7 percent by the end of 2016, which means that the annual rate of change in unit orders bottomed in July at roughly 19 percent. The model predicts that the rate of contraction will continue to decel- erate in 2017. Therefore, 2017 unit orders will be down 3.7 percent compared with 2016. However, GBI ran 100,000 simulations of the model, which showed that in 2017 unit orders could be down as much as 11.1 percent and up as much as 7.4 percent (see Figure 2). Never theless, the key conclusion is that machine tool orders bottomed in the summer of 2016. WHY SALES OF CORE MACHINE TOOLS SALES ARE UP GBI's 2017 Capital Spending Survey projects that total machine tool spending will fall 1 percent to $6.7 billion in 2017. Despite dropping every year since 2014, this machine tool consumption will still be above $6.5 billion, which is the average of yearly sales from 1958 to 2016. This means that machine tool spending will be above average for the sixth year in a row, indicating that the machine tool market will remain quite competitive. Fig. 2—GBI forecasted in July 2016 that machine tool unit orders would be down 14.7 percent in 2016, but our model predicts that the rate of contraction will continue to decelerate and unit orders will be down 3.7 percent in 2017. OUR ECONOMIC MODEL SHOWS TREND IN ORDERS WILL IMPROVE NEXT YEAR Unit model: 2016 down 14.7% and 2017 down 3.7%, with an 80% confidence interval of -11.1% to 7.4% 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 80% 60% 40% 20% 0% -20% -40% -60% Forecast USMTO (12/12 rate of change) 7.4% -11.1% -3.7%

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