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The second chart shows the 12-month rate of change for machine tool units and dollars (again, the dotted line is my forecast). I have supplemented the USMTC data with historical data from the MQ35W report created by the federal government. Here we see that the rate of change for both units and dollars bottomed three months ago. The dollar curve bottomed lower than the unit curve, indicating a significant oversupply of machine tools and a lack of pricing power for suppliers. This situation is correcting itself rather quickly. This chart shows that machine tool sales are still contracting, but that they are doing so more slowly.

 

To forecast machine tool sales I look at two leading indicators. The first is an average spending per plant for the next 12 months that we compute from our (MBI). The third chart shows that future spending plans have virtually doubled in the last 12 months. Real spending on machine tools according to USMTC lags the spending expectations from the MBI. While January shows a large drop compared to December, keep in mind that the trend since January 2010 is obviously positive.

 

The second leading indicator is industrial production. There are three industrial production indexes that I correlate to machine tool sales using 12-month rate of change curves – consumer durable goods, durable goods excluding motor vehicle and parts (what I call business durable goods), and combined durable goods. The first two are actual indexes computed by the Federal Reserve. The third is a weighted average (40% consumer durable goods and 60% business durable goods) of the first two. The combined industrial production curve is the best leading indicator for machine tool sales. On average, machine tool sales lag industrial production by 12 to 18 months. The lag time is typically shorter for contractionary periods. The last three charts show that industrial production bottomed between August and November 2009, depending on which curve you use. I expect machine tool sales to contract more slowly for most of 2010 with machine tool sales in 2010 ending up slightly higher (about 2%) than in 2009.