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Gear Market Report 2009 Gear Market Report 2009 Professor Michael D. Bradley Professor Michael D. Bradley
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Gear Market Report 2009Gear Market Report 2009
Professor Michael D. BradleyProfessor Michael D. Bradley
The American “Gear Industry”The American “Gear Industry”
• Open-market segment of the gear industry.Open-market segment of the gear industry.
• Excludes captive production of automotive Excludes captive production of automotive gears and transmissions. (Which is about 3 gears and transmissions. (Which is about 3 times the size of the open-market portion.)times the size of the open-market portion.)
• Sometimes known as the “IMA” sector for Sometimes known as the “IMA” sector for IIndustrial, ndustrial, MMarine, and arine, and AAerospace.erospace.
How Big is the How Big is the IMAIMA Gear Industry? Gear Industry?
According to the 2007 Census of Manufactures:
There are 238238 establishments employing 13,92913,929 workers including 10,14810,148 production workers.
There are 238238 establishments employing 13,92913,929 workers including 10,14810,148 production workers.
The total value of shipments from those establishments was $3.4 billion$3.4 billion. Of that, about $400 million were resales and contract receipts leaving about $2.9 billion$2.9 billion in primary shipments.
The total value of shipments from those establishments was $3.4 billion$3.4 billion. Of that, about $400 million were resales and contract receipts leaving about $2.9 billion$2.9 billion in primary shipments.
(AGMA’s statistical program estimated primary shipments in 2007 of $3.1 billion$3.1 billion.)
(AGMA’s statistical program estimated primary shipments in 2007 of $3.1 billion$3.1 billion.)
The gear industry spent $37.5 million$37.5 million on repair of buildings and equipment, $6.9 million$6.9 million on advertising and promotions and paid $17.0 million$17.0 million in taxes.
The gear industry spent $37.5 million$37.5 million on repair of buildings and equipment, $6.9 million$6.9 million on advertising and promotions and paid $17.0 million$17.0 million in taxes.
Capital Expenditures in the IMA Gear Capital Expenditures in the IMA Gear Industry in 2007Industry in 2007
Total Capital Expenditures:Total Capital Expenditures:$127.1 million$127.1 million
Buildings & Structures:Buildings & Structures:$19.9 million$19.9 million
Machinery & Equipment:Machinery & Equipment:$107.2 million$107.2 million
Vehicles:Vehicles:$3.2 million$3.2 million
Machinery:Machinery:$98.9 million$98.9 million
Computers:Computers:$5.0 million$5.0 million
In addition, the industry spent:
$12.7 m on building rental
$10.0 m on equipment rental
$10.4 m on expensed hardware, software, and data processing services.
AGMA Composite Shipments IndexAGMA Composite Shipments Index
Twenty Years of Gear Market Performance
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Trend Model: y = 60.53e0.0034x
0
50
100
150
200
250
1984
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2006
2007
2008
AG
MA
Sh
ipm
ents
In
de
x 2
002=
100
Long-term growth rate: 4.2% per year
Gear Shipments By Market SegmentGear Shipments By Market Segment
75
125
175
225
275
325JA
N 0
4
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
05
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
06
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
07
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
08
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
09
MA
R
MA
Y
JULY
20
02=
10
0
Open Gears
Enclosed Gearing
Both Segments Share the PainBoth Segments Share the Pain
As painful as this downturn has been for the domestic gear industry, it could have been worse. . .
Domestic consumptionconsumption of gears has fallen more than domestic productionproduction of gears.
The American gear market is very open:
Imports, 65.3%
Domestic Shipments,
34.7%
Shares of Domestic Gear Consumption
Imports, 65.3%
Domestic Shipments,
34.7%
Shares of Domestic Gear Consumption
Exports, 45.5%
Domestic Shipments
, 54.5%
Shares of Domestic Gear Shipments
Exports, 45.5%
Domestic Shipments
, 54.5%
Shares of Domestic Gear Shipments
Gear ImportsGear Imports
14.1% Growth in Imports for 200714.1% Growth in Imports for 200716.8% Growth in Imports16.8% Growth in Imports for 2008for 2008-24.9% Decline in Imports-24.9% Decline in Imports for 2009for 2009
14.1% Growth in Imports for 200714.1% Growth in Imports for 200716.8% Growth in Imports16.8% Growth in Imports for 2008for 2008-24.9% Decline in Imports-24.9% Decline in Imports for 2009for 2009
Gear ExportsGear Exports
10.4% Growth in Exports in 200710.4% Growth in Exports in 200716.6% Growth in Exports in 2008 16.6% Growth in Exports in 2008 -15.5% Decline in Exports in 2009-15.5% Decline in Exports in 2009
10.4% Growth in Exports in 200710.4% Growth in Exports in 200716.6% Growth in Exports in 2008 16.6% Growth in Exports in 2008 -15.5% Decline in Exports in 2009-15.5% Decline in Exports in 2009
Gear Trade BalanceGear Trade Balance
-$2,000,000
-$1,800,000
-$1,600,000
-$1,400,000
-$1,200,000
-$1,000,000
-$800,000
-$600,000
-$400,000
-$200,000
$01
98
3
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
(pro
j.)
Th
ou
san
ds
of
Do
llar
s
The recession could bring a marked The recession could bring a marked improvement in the trade gapimprovement in the trade gap
The recession could bring a marked The recession could bring a marked improvement in the trade gapimprovement in the trade gap
Real GDP
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2002
.01
2002
.02
2002
.03
2002
.04
2003
.01
2003
.02
2003
.03
2003
.04
2004
.01
2004
.02
2004
.03
2004
.04
2005
.01
2005
.02
2005
.03
2005
.04
2006
.01
2006
.02
2006
.03
2006
.04
2007
.01
2007
.02
2007
.03
2007
.04
2008
.01
2008
.02
2008
.03
2008
.04
2009
.01
2009
.02
An
nu
al G
row
th F
rom
Pre
vio
us
Per
iod
How does the current recession match up?
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
1948 1953 1957 1960 1969 1973 1980 1981 1990 2001 2007
% C
um
ula
tiv
e D
ec
lin
e F
rom
Pe
ak
Overall economic activity is the outcome of the “push Overall economic activity is the outcome of the “push and pull” by the various sectors in the economy.and pull” by the various sectors in the economy.
-50
-40
-30
-20
-10
0
10
20
30
40
2007:Q1 2007:Q2 2007:Q3 2007:Q4 2008:Q1 2008:Q2 2008:Q3 2008:Q4 2009:Q1 2009:Q2
% C
hang
e fr
om P
revi
ous Q
uart
er (A
nnua
l Ra
te)
Changes in the Components of Investment
Nonresidential Stuctures Equipment & Software Residential Structures
Industrial Production
40
50
60
70
80
90
100
110
120
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
Trend Fit on 1983 - 2008 DataTrend Growth Rate: 3.1%
18% Decline
Industrial Production -- Manufacturing
80
85
90
95
100
105
110
115
120
Jan-
98
May
-98
Sep
-98
Jan-
99
May
-99
Sep
-99
Jan-
00
May
-00
Sep
-00
Jan-
01
May
-01
Sep
-01
Jan-
02
May
-02
Sep
-02
Jan-
03
May
-03
Sep
-03
Jan-
04
May
-04
Sep
-04
Jan-
05
May
-05
Sep
-05
Jan-
06
May
-06
Sep
-06
Jan-
07
May
-07
Sep
-07
Jan-
08
May
-08
Sep
-08
Jan-
09
May
-09
2002
=10
0
Decline returns us to the February 1998 value
21% Decline
-3
-2
-1
0
1
2
3
00 01 02 03 04 05 06 07 08
DG3 ESHIP
Enclosed Drive Shipments Are DrivenEnclosed Drive Shipments Are Driven By Durable Goods Activity By Durable Goods Activity
-2
-1
0
1
2
3
4
00 01 02 03 04 05 06 07 08
NDG6 OSHIP
Open Gear Shipments Are DrivenOpen Gear Shipments Are Driven By Non Durable Goods By Non Durable Goods ActivityActivity
Durable Goods Shipments GrowthDurable Goods Shipments Growth
Wood ProductsWood ProductsPrimary MetalsPrimary MetalsFab. Metal ProductsFab. Metal ProductsMachineryMachineryComputersComputersElectrical Equip.Electrical Equip.Transportation Equip.Transportation Equip.FurnitureFurniture
Average 19% Decline from SPLY -- Last 6 Months
-40%
-30%
-20%
-10%
0%
10%
20%
30%JA
N 0
6
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
07
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
08
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
09
MA
R
MA
Y
JULY
Growth in Gear Shipments
Enclosed Drives
Non-Durable Goods Shipments GrowthNon-Durable Goods Shipments Growth
Food ProductsFood ProductsTextilesTextilesApparelApparelLeather ProductsLeather ProductsPaper ProductsPaper ProductsPrintingPrintingPetroleum & CoalPetroleum & CoalChemicalsChemicalsPlastic and RubberPlastic and Rubber
Average 20 Decline from SPLY -- Last 6 months
-60%
-40%
-20%
0%
20%
40%
60%
80%JA
N 0
6
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
07
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
08
MA
R
MA
Y
JULY
SE
PT
NO
V
JAN
09
MA
R
MA
Y
JULY
Growth in Gear Shipments
Open Gears
Is the recession
over?
Has the economy hit
bottom?
The question everyone is asking:The question everyone is asking:
What it really means:What it really means:
ModeratingModerating
FirmedFirmed
ImprovementImprovement
ImprovementImprovement
ImprovementImprovement
ImprovementImprovement
ImprovementImprovement
StableStable
StableStable
StableStable
StableStable
StableStable
New Houses Sold
100
200
300
400
500
600
2008.08 2008.09 2008.1 2008.11 2008.12 2009.01 2009.02 2009.03 2009.04 2009.05 2009.06 2009.07 2009.08
Th
ou
san
ds
of
New
Ho
use
s S
old
(A
nn
ual
Rat
e)
Is the manufacturing
recession over?
$300
$320
$340
$360
$380
$400
$420
$440
$460
$480
2002
.01
2002
.04
2002
.07
2002
.10
2003
.01
2003
.04
2003
.07
2003
.10
2004
.01
2004
.04
2004
.07
2004
.10
2005
.01
2005
.04
2005
.07
2005
.10
2006
.01
2006
.04
2006
.07
2006
.10
2007
.01
2007
.04
2007
.07
2007
.10
2008
.01
2008
.04
2008
.07
2008
.10
2009
.01
2009
.04
2009
.07
Bil
lio
ns
of D
oll
ars
Value of Manufacturing Shipments
24% Decline from Peak
PMI IndexPMI Index
30
35
40
45
50
55
06.01
06.03
06.05
06.07
06.09
06.11
07.01
07.03
07.05
07.07
07.09
07.11
08.01
08.03
08.05
08.07
08.09
08.12
09.02
09.04
09.06
09.08
An index value > 50 means growth in the An index value > 50 means growth in the manufacturing sector.manufacturing sector.
August’s index suggests August’s index suggests growthgrowth in manufacturing in manufacturing
New Orders IndexNew Orders Index
51.149.2
55.3
64.5
25
30
35
40
45
50
55
60
65
May June July August
• Textiles• Paper Products• Printing• Apparel• Leather Products• Electrical Equipment• Appliances• Computers & Electronics• Wood Products• Chemical Products• Fabricated Metal Products• Plastic & Rubber Products• Transportation Equipment
Increases in new orders are widespread across manufacturingIncreases in new orders are widespread across manufacturing
Is the gear market
recession over?
Composite ShipmentsComposite ShipmentsChange from SPLYChange from SPLY
88
90
92
94
96
98
100
102
104
106
2003
.01
2003
.04
2003
.07
2003
.10
2004
.01
2004
.04
2004
.07
2004
.10
2005
.01
2005
.04
2005
.07
2005
.10
2006
.01
2006
.04
2006
.07
2006
.10
2007
.01
2007
.04
2007
.07
2007
.10
2008
.01
2008
.04
2008
.07
2008
.10
2009
.01
2009
.04
2009
.07
2009
.10
2010
.01
2010
.04
2010
.07
2010
.10
2011
.01
2011
.04
2011
.07
A Pressure Curve View of a RecessionA Pressure Curve View of a Recession
Recession Ends
Recession Begins
Gear Shipments Pressure History
40
50
60
70
80
90
100
110
120
1301
998
.01
199
8.0
7
199
9.0
1
199
9.0
7
200
0.0
1
200
0.0
7
200
1.0
1
200
1.0
7
200
2.0
1
200
2.0
7
200
3.0
1
200
3.0
7
200
4.0
1
200
4.0
7
200
5.0
1
200
5.0
7
200
6.0
1
200
6.0
7
200
7.0
1
200
7.0
7
200
8.0
1
200
8.0
7
200
9.0
1
200
9.0
7
Pre
ssu
re C
urv
es
12/12Curve
3/12Curve
We gotten to the point where the terror of freefall is over, but what does the path
forward look like?
A Familiar ShapeA Familiar Shape
1. Labor Market Weakness1. Labor Market Weakness
• Households face:– Little accumulated savings – Limited borrowing ability.
• A sustained increase in consumption requires rising household income.– Growing employment is key for stimulating
both income and confidence growth
Civilian Unemployment Rate
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep-0
6
Nov-0
6
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep-0
7
Nov-0
7
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep-0
8
Nov-0
8
Jan-
09
Mar
-09
May
-09
Jul-0
9
Per
cen
t o
f L
abo
r F
orc
e U
nem
plo
yed
Highest Rate Since June of 1983
2. Rising Government Debt2. Rising Government Debt
Government debt typically rises in a recession but the current and
expected debt growth is extraordinary.
The federal government is extracting funds from the financial The federal government is extracting funds from the financial markets making it harder for households and firms to finance markets making it harder for households and firms to finance increases in economic activity.increases in economic activity.
The federal government is extracting funds from the financial The federal government is extracting funds from the financial markets making it harder for households and firms to finance markets making it harder for households and firms to finance increases in economic activity.increases in economic activity.
3. The Liquidity Bomb3. The Liquidity Bomb
Households & Firms
Federal Reserve
Commercial Banks
The Monetary Base
The Money Supply
Where does the money supply come from?Where does the money supply come from?
The Monetary Base
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Jan
-06
Ma
r-0
6
Ma
y-0
6
Jul-
06
Se
p-0
6
No
v-0
6
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
Bil
lio
ns
Unprecedented Growth in the BaseUnprecedented Growth in the Base
4. Fragility of the Financial System4. Fragility of the Financial System
Last year’s financial crises inflicted widespread injury on the financial systems.
Historically, financial systems respond slowly to such crises.
The financial market will be a constraint on a speedy recovery.
Default Rates on Commercial Real Default Rates on Commercial Real Estate LoansEstate Loans
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2008 Q3 2008 Q4 2009 Q1 2009 Q2
Commercial Mortgage Backed Securities Issued
$0
$50
$100
$150
$200
$250
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Bill
ion
s o
f D
olla
rs
5. Excess Capacity and Weak Profits5. Excess Capacity and Weak Profits
• This recession has been deep and has severely hit manufacturing and construction.
• Production levels are far below capacity.
• Excess capacity hinders growth in plant and equipment spending.
• Weak profits in tight credit conditions also inhibit P&E spending.
New Houses Sold
0
200
400
600
800
1000
1200
1400
160020
04.0
8
2005
.08
2006
.08
2007
.08
2008
.08
2008
.09
2008
.10
2008
.11
2008
.12
2009
.01
2009
.02
2009
.03
2009
.04
2009
.05
2009
.06
2009
.07
2009
.08
Th
ou
san
ds
of
New
Ho
use
s S
old
(A
nn
ual
Rat
e)
Gear Market OutlookGear Market Outlook
• A gear market recovery requires of couple of successive A gear market recovery requires of couple of successive quarters of improved economic activity.quarters of improved economic activity.
• The nascent recovery in manufacturing is good news for The nascent recovery in manufacturing is good news for the gear market.the gear market.
• An investment-lead recovery would be very helpful the An investment-lead recovery would be very helpful the gear market.gear market.
• There are some signs that the gear market is ready to There are some signs that the gear market is ready to turn.turn.
• A gear market recovery requires of couple of successive A gear market recovery requires of couple of successive quarters of improved economic activity.quarters of improved economic activity.
• The nascent recovery in manufacturing is good news for The nascent recovery in manufacturing is good news for the gear market.the gear market.
• An investment-lead recovery would be very helpful the An investment-lead recovery would be very helpful the gear market.gear market.
• There are some signs that the gear market is ready to There are some signs that the gear market is ready to turn.turn.
Ratio of Gear Bookings to Gear ShipmentsRatio of Gear Bookings to Gear Shipments
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%20
02.0
120
02.0
220
02.0
320
02.0
420
02.0
520
02.0
620
02.0
720
02.0
820
02.0
920
02.1
020
02.1
120
02.1
220
03.0
120
03.0
220
03.0
320
03.0
420
03.0
520
03.0
620
03.0
720
03.0
820
03.0
920
03.1
020
03.1
120
03.1
220
04.0
120
04.0
220
04.0
320
04.0
420
04.0
520
04.0
620
04.0
720
04.0
820
04.0
920
04.1
020
04.1
120
04.1
220
05.0
120
05.0
220
05.0
320
05.0
420
05.0
520
05.0
620
05.0
720
05.0
820
05.0
920
05.1
020
05.1
120
05.1
220
06.0
120
06.0
220
06.0
320
06.0
420
06.0
520
06.0
620
06.0
720
06.0
820
06.0
920
06.1
020
06.1
120
06.1
220
07.0
120
07.0
220
07.0
320
07.0
420
07.0
520
07.0
620
07.0
720
07.0
820
07.0
920
07.1
020
07.1
120
07.1
220
08.0
120
08.0
220
08.0
320
08.0
420
08.0
520
08.0
620
08.0
720
08.0
820
08.0
920
08.1
020
08.1
120
08.1
220
09.0
120
09.0
220
09.0
320
09.0
420
09.0
520
09.0
620
09.0
7
Gear Market ForecastGear Market Forecast
• The enclosed drive sector of the market The enclosed drive sector of the market should “bottom out” by the end of the year.should “bottom out” by the end of the year.
• The open gearing sector is right behind, The open gearing sector is right behind, turning late in the 1turning late in the 1stst quarter of 2010. quarter of 2010.
• It will take until the end of 2010 until the It will take until the end of 2010 until the gear market is making real gains on a gear market is making real gains on a year-over-year basis.year-over-year basis.
• The enclosed drive sector of the market The enclosed drive sector of the market should “bottom out” by the end of the year.should “bottom out” by the end of the year.
• The open gearing sector is right behind, The open gearing sector is right behind, turning late in the 1turning late in the 1stst quarter of 2010. quarter of 2010.
• It will take until the end of 2010 until the It will take until the end of 2010 until the gear market is making real gains on a gear market is making real gains on a year-over-year basis.year-over-year basis.
ConclusionConclusion
. . . Cut Once. . . Cut Once
Measure Twice . . . Measure Twice . . .
