Gear Market Report 2009

1. Gear Market Report 2009 Professor Michael D. Bradley

2. The American “Gear Industry” • Open-market segment of the gear industry. • Excludes captive production of automotive gears and transmissions. (Which is about 3 times the size of the open-market portion.) • Sometimes known as the “IMA” sector for Industrial, Marine, and Aerospace.

4. How Big is the IMA Gear Industry? According to the 2007 Census of Manufactures: There are 238 establishments employing 13,929 workers including 10,148 production workers. The total value of shipments from those establishments was $3.4 billion. Of that, about $400 million were resales and contract receipts leaving about $2.9 billion in primary shipments. (AGMA’s statistical program estimated primary shipments in 2007 of $3.1 billion.) The gear industry spent $37.5 million on repair of buildings and equipment, $6.9 million on advertising and promotions and paid $17.0 million in taxes.

5. Capital Expenditures in the IMA Gear Industry in 2007 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.

6. AGMA Composite Shipments Index

9. Gear Shipments By Market Segment

10. Both Segments Share the Pain

11. The American gear market is very open: As painful as this downturn has been for the domestic gear industry, it could have been worse. . . Domestic consumption of gears has fallen more than domestic production of gears.

12. Gear Imports 14.1% Growth in Imports for 2007 16.8% Growth in Importsfor 2008 -24.9% Decline in Importsfor 2009

13. Gear Exports 10.4% Growth in Exports in 2007 16.6% Growth in Exports in 2008 -15.5% Decline in Exports in 2009

14. Gear Trade Balance The recession could bring a marked improvement in the trade gap

16. How does the current recession match up?

17. Overall economic activity is the outcome of the “push and pull” by the various sectors in the economy.

20. 18% Decline

21. 21% Decline

22. Enclosed Drive Shipments Are Driven By Durable Goods Activity

23. Open Gear Shipments Are Driven By Non Durable GoodsActivity

24. Durable Goods Shipments Growth Wood Products Primary Metals Fab. Metal Products Machinery Computers Electrical Equip. Transportation Equip. Furniture Average 19% Decline from SPLY -- Last 6 Months

26. Non-Durable Goods Shipments Growth Food Products Textiles Apparel Leather Products Paper Products Printing Petroleum & Coal Chemicals Plastic and Rubber Average 20 Decline from SPLY -- Last 6 months

28. Is the recession over? Has the economy hit bottom? The question everyone is asking: What it really means:

29. Improvement Stable Improvement Stable Stable Stable Improvement Improvement Improvement Stable Firmed Moderating

31. Is the manufacturing recession over?

34. PMI Index August’s index suggests growth in manufacturing An index value > 50 means growth in the manufacturing sector.

35. New Orders Index • 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 manufacturing

36. Is the gear market recession over?

37. Composite ShipmentsChange from SPLY

38. Recession Begins A Pressure Curve View of a Recession Recession Ends

41. We gotten to the point where the terror of freefall is over, but what does the path forward look like? A Familiar Shape

42. 1. 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

46. 2. 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 markets making it harder for households and firms to finance increases in economic activity.

49. Federal Reserve Commercial Banks Households & Firms 3. The Liquidity Bomb Where does the money supply come from? The Monetary Base The Money Supply