Insights from an Industry Expert

Transcript

This session will be, top trends shaping the nectar of maintenance and operations.

My name is Kevin Bowers. I spent twenty five plus years in manufacturing and manufacturing, technology industries.

I'm currently the vice president of research at AMT, the Association for Manufacturing Technologies.

I lead the research team where we do research consulting and advisory.

Thank you for joining us today.

Here's what we plan to to cover today. First, a little bit about who AMT is. You probably have heard of us. You just maybe haven't made the connections on why. Then we'll talk a little bit about manufacturing trends, then we'll jump into a few forecasts, and we'll talk about some some very interesting issues of the moment, those being tariffs and taxes.

Alright. So first, we'll start with the US manufacturing technology outlook.

But before that, let's talk a little bit about who AMT is. AMT is, as I mentioned before, the Association for Manufacturing Technology.

We've been around for a little bit. We were founded in nineteen o two. At that time, it was, the Association for Machine Tools. And we've, grown over the years to encompass all sorts of technology around the manufacturing sphere. So that's why our current name and Association for Manufacturing Technology exists. But back in nineteen o two, this is kind of what a factory looked like. You can see not a lot of power driven by pulleys and belts that were probably driven by steam or water, but we've progressed quite a bit since then.

But if you're not if AMT isn't ringing a bell, this may help. IMTS. IMTS is the largest manufacturing technology trade show in the northern hemisphere. It's every two years in Chicago.

The next one will be September twenty twenty six. But IMTS is run by AMT.

As I mentioned, very large, in September of last year, twenty twenty four, we had about ninety thousand, participants, over eighteen hundred exhibitors covering one point two million square feet of space. So it is the place to come where we want to connect both the buyers of, manufacturing technology as well as the sellers of manufacturing technology.

So I'm sure you've heard of this. So this is, AMT, powers this show.

Here's where, AMT fits in the manufacturing technology ecosystem.

Between the show and our reach, we we talk to or have active engagement for over a million, people, which is probably fifty percent of the manufacturing technology end users, which, fits into discrete manufacturing sector, which is about six and a half million, of the almost thirteen million US manufacturing workforce.

The things our members supply, robots and automation, digital manufacturing, additive manufacturing, traditional metal cutting and forming, tooling workholding, quality and metrology, forming and fabricating, as well as finishing and cleaning. So from input to output in the manufacturing process, our our members supply those, technologies to the end user.

Alright. So let's start it off. Manufacturing trends. And let's start at the thirty thousand foot view. So this is a graph of real GDP as percent change.

So you can see the most newest reading we have is from q two of twenty twenty five. That's where we saw that the economy grew at an annualized rate of three percent.

If you follow it closely, you know that that followed what we saw in q one of actually a negative reading, negative zero point five percent.

And this, flip flop was mostly due to, maybe impacts of the tariffs. But you can see long term since, twenty twenty, q three of twenty twenty, where we saw robust growth, coming out of the pandemic.

Other than a small blip in twenty twenty two, there's been growth. So the key takeaway here is that despite what we hear in the news, the media, things that you read, these numbers that are positive above zero means our economy is growing.

Now the the average trend is about two, two and a half percent. So this year, we're a little bit behind that. But as we see, the the year, progress, we'll see what comes out. But the positive takeaway, the US economy is growing.

Alright. Let's look at a few things that are some good indications of what's going on in manufacturing. So we're gonna look at consumer spending, industrial production. So when you see this graph on the right here, the blue line, the the dark blue line is real consumer, expenditures.

And then you can see the greenish line is industrial production. So that you you can see that in, twenty twenty five that the blue line is quite above industrial production. So what that means is people are spending money. They're buying demand.

They're, sucking up things in in the, economy, and industrial production is still behind that. So this delta means there are things that need to be made, things that need to be manufactured, delivered to the consumer. So despite of everything we heard, this personal expenditures are good, are, outpacing production. So there's things that need to be made, so we have some positive outlooks for the industry.

The next thing, something we track, NAM, which is the National Association of Manufacturers, they do a quarterly survey. Their most recent data is from May of twenty twenty seven, and they ask a bunch of questions of manufacturers. But, one of the questions is, what is the outlook for your company? And you can see in q two, it was still positive, fifty five point four percent. This is even after the Liberation Day tariff announcements. You know, it was down from q one, but still positive, which is a good thing. And what's particularly interesting is small manufacturers were positive sixty three point nine percent of the time, and we know that small manufacturers make up eighty, ninety percent of manufacturing community so that those small manufacturers are still positive despite what we've seen.

We see also still positive in, growth of sales. We see growth rate for employment still positive. We see capital investment, sentiment still positive. We see prices of products, forecasted to rise a little bit, and we see that inventories are going to go down. So overall, we see, some still some positives despite what we see. The next, survey should come out mid September, so be on the lookout for that after, our conference here.

Now when we dig into the details that affect some of these sentiments, we see that the the overwhelming majority of the concern that comes from trade uncertainties, and then closely linked to that are increased raw material cross costs. If, things coming into the country, are are more expensive and those inputs are more expensive, costs will go up. We see other things such as, health care insurance costs, attractive attracting a quality workforce, supply chain challenges. So, those are the ideas weighing on the minds of, manufacturing leaders.

But as I mentioned, other than, kind of a a negative outlook for export sales, which we see down just point six percent, all other things, sales, production, capital investments, are up. Input costs are also up, but we still we see that's not impacting, sales and production just yet. So these are are things to watch out for, and I'm sure you hear about these in the news. So keep an eye out as this next survey comes out.

So to to sum up some of the recent trends, we have interest rates. Lot of talk in in the world about interest rates in June. Rates were held steady. We did have two of the board the federal open market committee members' dissent. However, still a majority, voted to keep, rates, flat.

We will see the next meeting is, mid September again to see, what we'll find out. Jobs, report and personal, inflation reports will will come out prior to that. So we'll probably have some good indications of what's gonna happen, prior to the meeting. Employment, employment is, still around four point two percent, a little bit up from earlier in twenty twenty five.

We see a little bit of softening, but not enough to to drive a downturn. But those are things to keep in, in our minds. We also saw consumption again rose in June, as we saw on the graph in the first few slides. But, it is slowing a little bit.

So we need to keep an eye on these. So these are the key things you should keep your ears out for in the industry, rates, employment, and consumption.

So now, the next few slides that we're going to talk about are informed by our statistical programs here at AMT. We have our USMTO, which tracks manufacturing technology orders from, the industry. We have also our CTMR, cutting tool market report, which, tracks the cutting tools that go into some of the the equipment in the USMTO report, as well as our advanced workholding technology survey that also, collects data on the the equipment that holds the work piece inside of the machine. So these three statistical programs will inform some of these next slides and and some of our forecast towards the end of this presentation today.

First, trends pre COVID, pre pandemic, however, going to say. So the light, blue line, you can see that's on the top is our USMTO order trend. This is all indexed to q nine, q, q three of two thousand and nineteen.

White is the cutting tool, and gray is workholding. You can see that, you know, pretty much you you can see that bent generally speaking, increases in cutting tool and work holding fall about two quarters after the the machine orders. And that is something that's held for quite a little long time. But coming out of the pandemic, we saw, something that still not corrected itself. It's very interesting. So coming out of the pandemic, you can see q two of twenty twenty kind of being the trough of the valley, and then a sharp increase in the in the light blue, which is the orders for manufacturing technology.

Unbelievable increase. And and we saw this for many reasons. Demand coming back, pent up demand, people worried about supply chain demand, so maybe ordering more machines than they needed because they didn't know what would come. So we saw quite a huge increase in CapEx spending and the cutting tools and workholding, which are the things that go into the machines after they're delivered, we saw a delay.

So what this means is, the the USMTO is order based. So, we report the, data on at the time of order, not installation, but, quite a big peak of orders. And finally, because of supply chain constraints, deliveries took a long time. And, even when they showed up, maybe there wasn't enough people to run them.

So we didn't see the actual things we need to run the equipment, orders uptick, is that traditional two quarter follow yet. So it's very interesting to watch, but, we've seen some robust demand growth here in twenty twenty five.

So we'll see how this goes, but it's still working its way out. We have a lot of, capacity, and we'll see that in some of the, following slides.

So the thing is we're gonna talk about, here, as far as current trends is automation.

Automation employment are being utilized in ways that have seen productivity gains through both twenty twenty four and twenty twenty five. This is kind of reversing some of the previous trends in in declining productivity.

The government is investing, the chips apps, the jobs that acts, some tax cuts that allow for investment.

So we can see some great investment for the government, also, in regards to some military investments and the soft landing. We don't have a lot of history of soft landings, but bad the last time was around nineteen ninety five where, you know, rates were cut, despite, or without a recession. And we did see at that time that machinery technology manufacturing technology orders did increase. So assuming we we we stick this soft landing, we should still see some increases in manufacturing technology orders over the year.

So, automation.

Our best gauge of this is is this graph on the right. You can see that the the blue is average order value of this USMTO order manufacturing technology orders, and you can see, quite an increase. But then we can see in the light white or gray line is the basically the index of inflation for manufacturing technology equipment. Right? You can see it's relatively flat, and the the slope of the curve up is a lot, less pronounced than the average order. So what we see there is in every order, we're packing more and more, options and automation.

So the average order value is increasing much faster than, say, inflation for the this equipment. So we we read this as an investment in automation for manufacturing technology. And we'll try to dig into that in the next few slides here.

This is a very interesting graph, and we talked about it before, but employment. So, all manufacturing is the blue line, you can see, and then durable goods, is the white line. But what you can see is quite in interesting. The the vertical gray bands in two thousand and one, two thousand and eight, and then twenty twenty are periods of recession.

And you can see that every time, entering a recession and then recovery for recession, the amount of either all manufacturing or durable good manufacturing employment was less than when it was entered. Right? You can see that in o one. You can see that in two thousand eight.

But what's different about twenty twenty is employment came back. Right? So when it entered here, you can see it was somewhere around, you know, thirteen million people. And then post recession and the pandemic, it came back up.

So it's that's unique, good news that manufacturing came back and it was to kind of, satiate the demand of, the consumers that we saw in some of the preceding slides. But you also notice some from about two thousand and three, it's, flatlining here. And, you know, last few, jobs reports we've seen, about seven thousand, manufacturing jobs lost per month. But we're still, right at the level pre pandemic, but it is flattening.

So let's dig into that a little bit.

This is a graph from manufacturing labor productivity, and you can see that from basically twenty twenty three, it's on the uptick.

So productivity is going up over the period where we saw that, labor is flat, Right? And we also saw in two graphs ago that, average order value of equipment going up. So the way that we're increasing production is by automation because, you know, even with employment being flat, there's still over four hundred thousand jobs reported left unfilled. So the way to kinda cover some of that is automation.

We're not taking jobs. We're just kind of, making up for the lack of, people to help increase productivity. So as long as we see productivity increase, labor rates stay flat, that means that we're employing more automation in the field, which with more automation, there's more opportunities for, aftermarket support and maintenance. So it's increasing some of the downstream industries as well as far as, aftermarket support.

So the forecast.

And on August the seventh last month, we had our AMT summer economic updating forecast, and we saw that we see machinery, manufacturing technology orders will grow at a pace of two point nine percent this year.

We do see, because of tariffs and some things, some softening in twenty twenty six, but then back to growth in twenty twenty seven. And then, cutting tools, we see a little bit negative in twenty twenty five, but positive in twenty twenty six. And that kind of holds as we talked about, you know, cutting tool orders and workholding orders kind of lag machine orders. So we see some growth in twenty twenty five for, manufacturing technologies such as equipment and machinery. We should see those cutting tool orders follow a little bit later. Now the good news about this is, is, the forecast that we gave along with Oxford Economics back in May of twenty twenty five was a negative seven percent growth rate for twenty twenty five for machinery.

So that was indicative of a lot of the unknown and uncertainty around the tariffs. So, the forecast then was negative seven, but, we've seen not as many impacts from the tariffs as we thought, plus an additional, boost for some of the tax cuts that were made permanent. We'll talk about it a little bit. So we we've seen a return to growth for twenty twenty five. So this is good news, for us in the industry.

So what do we see in some of the industries in manufacturing right now? First, job shops, which is, the majority of manufacturing, small shops that take on orders from OEMs in tier one, twos, and threes.

In twenty twenty four, they were a little bit lagging with their average orders, but we've seen them pick up and add capacity in the in the path in the first six months of the year. So that's good news for the small manufacturing, and that lines up with the NAM manufacturing, survey, where we still see some positivity in small manufacturers of sixty three percent with a positive outlook.

Medical, medical orders are above the average from twenty twenty one to twenty twenty four period is positioned to be a buying cycle, we think, and continue to increase until two thousand and thirty.

Electrical equipment.

We hear a lot about AI, Dana centers, and a need for power. So, we see that electrical equipment to support the grid as well as, equipment to support power generation for, you know, data centers and such, driving some huge demand. And then aerospace.

Once we finish some strikes with Boeing at the end of twenty twenty four, we've seen a pretty good increase.

We know that both Boeing and Airbus have quite a bit of order backlog. So, even if things stayed as they were, there's still ten years of manufacturing left to to deliver all those planes that are in the backlog. So we see growth in aerospace, both commercial and defense going forward.

So that's what we see. So that's something on the minds of of of everyone, you know, both manufacturing not is this idea of tariffs. AMT ran a survey at the end of May of this year to ask a few questions. And, the key takeaway, is the tariffs are definitely influencing in strategic planning across the manufacturing technology. Since, technology industry, the biggest thing is, as you've listened to the news, is, the uncertainty. Right? Things change at a rapid pace.

So what we see is, the strategic planning is taking a multistep approach. Some are almost everyone in eight out of nine almost nine out of ten reporting landed cost increase.

Eighty three percent saw margin reduction. So it means they're eating some some of the the increases, but also seventy six percent mentioned that they've raised prices. So you can see by case by case, product line by product line, industry by industry that, there's different approaches being taken. Industry is not as sensitive to cost increases. Maybe we're seeing price increases, industries where there are sensitivity to prices. Maybe some of the manufacturers and importers are eating some of the prices.

Ninety percent of respondents or nine out of ten people said that their portfolio is being impacted, and then, one and two see some sort of disruptions in their procurement and planning process.

So the takeaway here is manufacturers are adapting, but there are concerns that remain. And we've seen week by week announcements of different, trading agreements with different countries. So we're starting to see things settle out a little bit. It seems that fifteen percent seems to be the bottom for now.

We see fifteen percent with Europe, Japan, Korea, and such. So, things are starting to to settle down. So we we hope that, this is helping us. In q three, we plan to launch another, spot survey on this.

So we should have some updates towards the end of the year, and we will post those on our our website. And I'll give you a link at the end so you can kinda look for that in the coming months.

So these this is, you know, a topic that we need some attention to. But some good news is, there were some major wins from manufacturers in the last month or so, the tax updates. So, on July fourth, the current administration signed into law some new tax updates.

Here are some of the key ones. There's a twenty percent pass through deduction. So, for most manufacturers that are small and private, a lot of the income is run through the individual. So, the amount of tax they pay has been very high. So, before the the first tax cut and jobs act in twenty seventeen, there was there's no pass through deduction. In twenty seventeen, it was set to twenty percent. But a lot of those, tax, laws set in twenty seventeen were set to expire soon.

The one big beautiful bill that was passed in July made that twenty percent pass through production permanent and increased it to twenty three percent.

Bonus depreciation before twenty seventeen, you could take an extra fifty percent off.

After that in twenty seventeen, it was a hundred percent, but it phased down to every year. And now, memorialized in the tax code is a hundred percent expensing through twenty twenty nine.

Also, now we can expense, research and development costs.

Also, in support of workforce, the five twenty nine savings account, which most people kind of equate with, investment or or savings for colleges. Now those can be, used for registered apprenticeship programs and some trade schools, which is is helpful.

We also have what, most know is called, section one seven eight nine. It's, you can deduct qualifying equipment and now, facilities, up to, three point five million dollars. So a lot of these different tax provisions were made, permanent or at least extended for five years. So we see that there'll be a quite a bit of upside here for manufacturers.

So, keep an eye out on that. Obviously, consult your tax professionals for the real impact to your business, but, these are things, to keep an eye on. If you follow the link here for more, you can read an article on a and t online dot org about, the topics. So please do that.

On August eleventh, we updated the the information for the USMTO. We can see that so far through, June of twenty twenty five, two point five billion dollars worth of the manufacturing statistical program. So this is an increase over twenty twenty four, so that's good news. You can, read about the monthly press releases on a m t online dot org. They come out every second Monday of the month.

Also, if you're interested in some more market forecast, data and analysis, and industry specific outlooks, in October, AMT is holding our MT forecast event. You can, follow, scan this QR code or go to AMT online dot org to learn about those.

And then finally, if you have any questions, interesting slides that you wanna talk more about, please, use my contact info. Also, you can use to scan this QR code and go to our website and submit a form to to ask more. So we appreciate, the time, and thank you very much for for joining us today.

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