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62 MoldMaking Technology May 2015 REPORT End Market By Steve Kline Jr. FOR MORE INFORMATION: Steve Kline Jr., Director of Market Intelligence, Gardner Business Media Inc. skline2@gardnerweb.com / gardnerweb.com/economics/blog Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-15 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Consumer Goods/Automotive Consumer goods production has seen decelerating growth since last September. However, despite the recent downtrend in the annual rate of change (see the gray line on the chart), its growth rate is still on the same uptrend it has been on for the last four years, and given recent data on disposable income and consumer goods spending, I think consumer goods production should continue on this path. In February, real disposable income was $12,278 billion (seasonally adjusted at an annual rate). This was the highest level of disposable income ever. In addi- tion, the month-over-month rate of growth in the month was 4 percent for the second month in a row. Excluding a few months that were artificially inflated due to changes in tax law, this was the first occurrence of growth of at least 4 percent in consecutive months since October and November 2006. The histor- ical average month-over-month rate of change is 3.1 percent. February was the third month in a row of above-average growth, which pushed the annual rate of growth to 2.8 percent, the fastest rate of growth since January 2013. We should see further acceleration in the annual rate of change over the next few months. In response to the accelerating growth in disposable income since early 2014, consumer goods spending has taken off in early 2015. The annual rate of change in such spending is growing at its fastest rate since September 2011, and given the accelerating growth in incomes, consumer goods spending should continue to grow faster, at least into the summer. This is very positive for consumer goods production and mold consumption. Consumer Goods Spending on a Tear Motor vehicle and parts production has grown at a consistently strong rate for most of the last two years, but this flat rate of growth has been virtually the slowest since the industry recovered from the financial collapse of 2008. However, leading indicators are pointing toward accelerating growth in motor vehicle and parts production this year. First, the 10-year treasury rate has been falling for nearly two years. While the change in the rate may be getting ready to shift direction, the historical cor- relation between the 10-year treasury rate and motor vehicle and parts spending indicates that spending should see faster growth for most, if not all, of 2015. Since consumers started spending more on cars again in 2010, motor vehicle and part spending has been on a steady uptrend, despite some cyclical fluctua- tions. Automotive spending in February was growing at its fastest rate since late 2002. An eyeball test of the correlation between motor vehicle spending and production (see the chart) provides some evidence that industry may have worked off any excess production from 2010 to 2013. Therefore, it seems that production should grow faster than 10 percent this year. Combine the growth in production with the number of vehicle launches over the next couple of years, and this is very positive for the moldmaking industry. Automotive Production Should Return to Accelerating Growth Real Consumer Goods Spending (12-mo ROC) Real Consumer Goods Spending Leads Consumer Goods Production Consumer Goods Production (12-mo ROC) 10 8 6 4 2 0 -2 -4 -6 -8 -10 10 8 6 4 2 0 -2 -4 -6 -8 -10 Real MV&P; Spending (12-mo ROC) Real MV&P; Spending Leads MV&P; Production MV&P; Production (12-mo ROC) 50 40 30 20 10 0 -10 -20 -30 -40 -50 50 40 30 20 10 0 -10 -20 -30 -40 -50 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-15 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13