U.S. Market for Industrial Manufacturing Companies: At the Peak or in the Trough?

The problem with this answer is that there is no such thing as an average industrial manufacturer. Each company in this sector has their own particular mix of products and technologies that target their own particular mix of specific manufacturing end-markets. For many companies in the sector, they are now at the peak and having to face the prospects of disappointed parent companies or investors. Other companies are actually in the trough with nothing but upside potential looking forward.

As Tom Runiewicz observed in a recent Global Insight U.S. Industry Webcast, there is a richer story underlying the aggregate trend in industrial production. Companies serving high-tech manufacturers will see continued strong growth, while those serving traditional manufacturing will see end-market growth coming very close to zero this year. Within traditional manufacturing, manufacturers of materials will see an actual decline in production levels in 2007.

However, the data can be sliced finer and it is worth the effort of every company to focus on the data and fully understand the implications of their end-market segment concentrations and other external business drivers. Take, for example, the cases of two fictitious companies—Gipfel Machine Corp. and Tal Tools Inc.

Figure 1: Gipfel Machine Corp.—U.S.End-market Sales Distribution

( Note: fictitious data developed for illustrative purposes.)

Gipfel is a multi-divisional company that sells industrial parts and components to a number of manufacturing industries. It has a large customer base in construction and industrial machinery; other segments like engines and turbines and electrical equipment are also significant.

Figure 2: Tal Tools, Inc.—End-marketU.S. Sales Distribution

Tal Tools is a company that is heavily reliant on the automotive sector, but has been able to extend its suite of specialized products into ancillary transportation segments, as well as two niches in HVAC equipment and hardware.

For each company, we developed a custom market index based on the illustrated data and Global Insight's current forecasts for a wide range of industrial production sub indices. The results of this analysis are shown:

Figure 3: Gipfel at the Peak and Tal in the Trough

(Source data: Global Insight's April 2007 U.S. Economy forecast.
Note: Gipfel and Tal are fictitious companies developed for illustrative purposes only.)

These two illustrative companies are facing dramatically different demand conditions in the United States.

Tal has seen its market declining for over a year and is experiencing year-over-year growth rates last seen in the earlier part of the decade. However, Global Insight forecasts that Tal is at a clear turning point: first-quarter 2007 will be the trough. It is now time to prepare for recovery and hopefully gain profitable market share through pricing and production tactics tuned to reflect the "Tal" business cycle.

Gipfel is facing the opposite story. After having the strongest year of the decade in 2006, Gipfel is now in the middle of a relatively strong cyclical downturn. It is time to tune its pricing and production tactics to reflect the "Gipfel" business cycle and prepare its parent company and investors for much weaker results in 2007. By knowing where they are now and what is coming, Gipfel will be able to keep inventory levels in control and maintain margins through this down-cycle.

The key lesson in all this? Careful segmentation of your business and integration of external performance benchmarks can yield powerful bottom-line impacts.

For more information about how we can help manufacturing companies build accurate sales and market sizing planning tools, contact Brendan O'Neil at bBrendan.oneil@globalinsight.com.