The market for manufacturing technology has experienced a significant rebound since the brief downturn triggered by COVID-19 shutdowns in early 2020. While orders for machinery have increased well beyond their pre-pandemic levels, orders for workholding technologies, as well as shipments of the cutting tools used in the machinery, have not yet surpassed 2019 levels.
This article explores the dynamics between machinery orders, measured by the U.S. Manufacturing Technology Orders (USMTO) report, workholding orders, measured by the Advanced Workholding Technologies Report, and cutting tool shipments, measured by the AMT/USCTI Cutting Tool Market Report. All three collect data on orders or shipments, which are aggregated to gauge the size and direction of the market.
While the recession brought about in early 2022 led to a significant dip in orders for metal working machinery, it was a relatively small decline when compared to the previous two recessions and in the context of existing trends. Looking at all orders placed in 2020, the decrease from 2019 was smaller than the decrease from 2018 to 2019. Some of this can be explained by the unique nature of the last recession, which was brought about by a need to remain apart rather than a general contraction in consumer demand. This situation meant that services reliant upon in person gathering could not be performed and a lot of that demand shifted to manufactured goods that could be ordered and shipped with minimal contact. The shifting demand combined with lockdowns and restrictions internationally, along with the slowdown in international shipments, created the need for an uptick in needed manufacturing capacity.
That unique economic backdrop set the stage for orders of manufacturing technology to quickly rebound and set a record in 2021, with nearly $6 billion in new orders. Orders have been up across nearly all customer industries. Of note, industries that had typically represented only a small portion of monthly orders began placing outsized orders for additional machinery. This likely reflects the efforts of manufacturers to reshore parts of their supply chain in an attempt to avoid countries with strict lockdowns and delays in international shipping, as well as attempts to add redundancy to supply chains in order to avoid delays if one supplier had an issue causing it to temporarily close.
Unlike orders for machinery, shipments of cutting tools experienced a dramatic decline beginning in April 2020. Shipments began to recover in late 2020. Average monthly orders in 2022 are at their highest level since the downturn but have plateaued well below the average monthly levels seen in 2019. The disconnect between machinery orders and tool shipments will be explored more later in this article, and it should be noted, the data for cutting tool shipments is a closer reflection of actual manufacturing output rather than the need for additional capacity. Tools are only used when parts are being made so they are generally a leading indicator.
Like the demand for cutting tools, orders for workholding experienced a steep decline beginning in April 2022 and order levels have not quite returned to pre-pandemic levels. In the first half of 2022, both domestic orders and exports were at the highest level since the second half of 2019. In addition to taking on new orders, manufacturers of workholding technologies reported declining backlogs in every month of 2022 after hitting a peak in January 2022.
The divergence between the orders for new machinery and shipments of tooling or orders for workholding is the first time this pattern has emerged in recent history. The last time machinery orders and tooling shipments were out of sync for a similarly long period of time was in the early 1980s, prior to a prolonged downturn in the manufacturing technology industry. While the recent divergence could be an ominous sign, there are several reasons the economy and the industry are not the same as 40 years ago.
The first explanation could be the difference between the machinery being tracked at the time of order and tooling at shipment. Under normal circumstances, there would be some delay between the time a machine is ordered and when it is on a shop floor making parts and using tools. Over the last two years, supply constraints have caused growing lead times for the delivery of nearly everything, including machinery.
Second is the materials supply constraints. In addition to growing lead times for machinery, materials shortages are placing an upper limit on the number of tools that could be used. If there isn’t material to make parts, a shop doesn’t need tooling. While the tooling may not be needed immediately, the growing backlogs and continued demand for manufactured goods necessitate the order of machinery to increase capacity.
Third, and possibly most importantly, is the increased demand for automation to be added to machinery. There is a tendency for automation to be in higher demand during recessions and the most recent one was no different. What was different was the rapid recovery of the demand for employees. For the last several months, there have been nearly two job openings for every unemployed person seeking employment. This shortage of labor has expedited the adoption of automation and increased the value of machinery orders. Although there is an increase in the value of machinery ordered, it is still using the same number of tools, if not fewer, than a less-automated machine with a lower order value.
While there are some ominous historical parallels to the past in the data, there are more signs that point to a much brighter alternative. The recent orders of machinery have been from a more diverse customer base than at any recent point prior to the pandemic. This broad range of industries increasing domestic capacity will fuel further demand for tooling and workholding into the future. Despite challenges, signs are beginning to point to sustained consumer demand for manufactured goods as well as capital intensive services like air travel. Should that consumer spending continue, the demand for cutting tools and workholding could soon surpass their pre-pandemic levels, especially as lead times shorten, machines are delivered, and spindles turn.
If you are a builder or distributor of these technologies you may be eligible to receive more granular data by participating in one of the surveys. Please contact AMT to get started.
More information about the current state and future of the manufacturing technology market and key customer segments can be found at AMT’s annual MTForecast conference, Oct. 12-14, 2022, in St. Louis.
Please direct questions to Chris Chidzik at cchidzik@amtonline.org.
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