US Economic And Gear Industry Outlook

US Economic andGear Industry OutlookJoe T. Franklin, Jr.PresidentAmerican Gear Manufacturers Associationfranklin@agma.orgJune 15, 2012

at Happened in the 2011 US Gear Market?mand for gears was up sharply in the US because of themendous investment in “traditional” capital equipment.en though gear demand was up 28%, domestic shipments rose only%. The gap was filled by record gear imports (in terms of levelsrowth), a 33% rise.ports were due to a stronger US , but also the economieshina) from which imports came from were in or near recession.exports rose, but 30% of the business went to Canada/Mexico.ports were also directed to China, Brazil & Australia.okings in 2010 & 2011 grew so much faster than shipmentsnufacturers basically spent the year trying to catch-up.

ich Gear Demand Marketsre “Hot” in 2011?Railroad Equipment – up 59%Power Equipment – up 43%ndustrial Machinery – up 38%Mining, Oil & Gas Field Equipment – up 34%Construction Machinery – up 27%Machine & Other Tools Mfg – up 26%Commercial & Service Equipment – up 23%Farm Machinery – up 17%Aerospace – up 14%

or Gear Markets Will Shiftween 2012 & 2013test Growing in 2012ower Equipment, up 30% Fastest Growing in 20131.Aerospace, up 19%2.Mining & Oilfield Equip, up 11%ailroad Equipment, up 21%3.Railroad Equipment, up 11%aterial Handling Equip, up 19%4.Material Handling Equip, up 5%erospace, up 17%5.Construction Machinery, up 5%onstruction Machinery, up 17%6.Power Equipment, up 4%etalworking Machinery, up 15%7.Metalworking Machinery, up 3%dustrial Machinery, up 8%8.Industrial Machinery, up 3%hipbuilding, up 5%9.Farm Machinery, up 3%ning & Oilfield Equip, up 28%

Gear Bookings, Shipments, Demand,orts & Importsn dollars)ngsent Changementsent Changeestic Demandent Changetsent Changetsent ,485.94,141.14,437.34,652.413.932.918.87.24.3

e 2012 Gear Markets Bottom Linefor another growth year for traditional capital equipment as replacement and pent-upnd remain strong. This year should be a record in terms of bookings, shipments,nd, imports and exports for gears.ear manufacturers have become competitive internationally and boosted their exports,ost of these exports go to Canada and Mexico. Exports of US made capital goodsgear components have been very competitive internationally.t penetration of foreign made gears into US markets are currently at record levels.though domestic demand grew 28% in 2011, imports took the lion’s share of theess growing 33%. Domestic shipments increased only 20%. The US dollar remainsger relative to the Euro and Yen and this trend will continue in 2012.Hot” markets for the gear business will be mining, oil & gas field equipment,pace, material handling and other service equipment, and turbines and powermission equipment.a slowing considerably in 2013 and taking a breather in 2014, the next major upturne gear industry should occur in 2015 and 2016.

The US Economic OutlookEquipment Investment and CapitalGoods Manufacturing Will Continueto Lead the Economy

US Economy Keeps Growinging indicators are improving.sumers and businesses are cautiously increasing their spending.bound in housing markets is key to more robust economic growth.export outlook is favorable—after 2012.al policies will tighten, although the timing and scope is uncertain.threat from the Eurozone’s sovereign-debt problems is unresolved;rising, oil-price risks are falling. The probability of a return to

nsumer Sentiment Is Improving(Reuters/University of Michigan Index, 1966 100)200720082009201020112012

pply Managers’ Indexes Signal Growthou follow only one indicator, this should be the one.)(Index, over 50 indicates expansion)06200720082009Manufacturing Index20102011Nonmanufacturing Index2012

tained GDP GrowthReduce Unemployment01109876542003200520072009201120132015

Real GDP and Industrial Productionowth Good News for Gear Makers(Percent change)2000200220042006US Real GDP200820102012Industrial Production2014

using Will Join Light Vehicles in RecoveryLight Vehicle Sales and Housing 2015

tom Line for the US Economymost likely outcome is continuing (but modest) growth.labor market is improving more rapidly than final demand,istent with slower growth in productivity and corporate earnings.-up demand for housing will lead to stronger economic growth.al tightening is coming, but the big issues (entitlements and taxes)not be settled until after the 2012 elections: Bush tax cuts, AMT, 2%oll tax.major global risks are:An oil-price shock due to supply disruptions in the Middle EastFinancial contagion from the Eurozone sovereign-debt crisisA hard landing in China caused by the bursting of real-estate marketubble

US Economic Growth by GDP ComponentGDP C I G (X-M)cent 39.716.325.58.86.86.17.9eral Government-1.9-1.8-3.6-2.8e & Local ntial Investmentness Fixed Investmentorts

The US Gear IndustryBusiness to Remain Strong This Year,But Look for a Significant Slowdown in2013 and 2014

ar Outlook 2012 and 2013: Bookings & Shipmentsncrease Provided Imports Remain in Checke “traditional” equipment business cycle is starting to seegnificantly slower growth this year and in 2013 the expansion shouldow considerably.herefore, we look for the demand for gears to increase by 14%2012 and only 5% in 2013.meet demand gear shipments are expected to rise 11% to thisar and only 5% in 2013.ut foreign gear mfgs will continue to take a larger piece of the USmestic business. Look for imports to grow 19% this year and% in 2013. European mfgs will be extremely hungry for business.xports should continue to grow as Canadian & Mexican

r Gear Markets Will Shift Between 2012 & 2013test Growing in 2012ower Equipment, up 30% Fastest Growing in 20131.Aerospace, up 19%2.Mining & Oilfield Equip, up 11%ailroad Equipment, up 21%3.Railroad Equipment, up 11%aterial Handling Equip, up 19%4.Material Handling Equip, up 5%erospace , up 17%5.Construction Machinery, up 5%onstruction Machinery, up 17%6.Power Equipment, up 4%etalworking Machinery, up 15%7.Metalworking Machinery, up 3%dustrial Machinery, up 8%8.Industrial Machinery, up 3%hipbuilding, up 5%9.Farm Machinery, up 3%ning & Oilfield Equip, up 28%

Gear Bookings, Shipments, Demand,orts & Importsn dollars)ngsent Changementsent Changeestic Demandent Changetsent Changetsent ,485.94,141.14,437.34,652.413.932.918.87.24.3

Gearing Exports Have Grown,t Import Penetration Has Been StrongerUS Gear Imports & Exports5.0004.500Exports4.000ImportsMillion 00420062008201020122014

S. Gear Export Partners For 2011(Percent Market razil4%Germany3%

S. Gear Import Partners For 2011(Percent Market Share) %Italy5%UK4%

Gear Bookings, Shipments & Demand Were a Record.Look for Another Record this YearUS Gear Bookings & 0062008201020122014

ket Summary: Gear Domestic ,554.25,801.95,913.2nt .35.30.7n dollars)ial Machineryt Changeuction Equipmentt ChangeMachineryt Changeercial & Service Eq.t Change

ket Summary: Gear Domestic Demandd)n dollars)nes & Power Gen Eq.ent Changeg, Oil & Gas Field Eq.ent Changeldg & Offshore Rigsent Changead Equipmentent Changepaceent .573.283.297.2115.3138.16.213.616.818.719.7

Joe T. Franklin, Jr.Presidentwww.agma.orgfranklin@agma.org

American Gear Manufacturers Association franklin@agma.org June 15, 2012. at Happened in the 2011 US Gear Market? mand for gears was up sharply in the US because of the mendous investment in “traditional” capital equipment. en though gear demand was up 28%, domestic shipments rose only %. The gap was filled by record gear imports (in terms of levels rowth), a 33% rise. ports were due to a .