Seasonal Factors Cited : U.S. Machine Tool Orders Fell 19.7% for July

U.S. machine tool orders for July fell 19.7% from June due to seasonal factors, an industry association said Sunday, but the group expressed optimism that a 26.1% rise in exports heralds an improving trend.

Machine tools are a basic indicator of long-term economic strength, since lathes, grinding machines, drills and other metal working equipment are used to produce durable goods.

The National Machine Tool Builders Assn. said machine tool orders fell to $162.9 million from a revised $202.8 million in June. Last month, the association reported that June total tool orders stood at $205.8 million.

Foreign imports have been steadily eating away at U.S. market share since the mid-1970s and now make up 50% of the market, the NMTBA says. However, the amount of U.S. tool orders improved in May and June primarily because of auto plants closings. Production from these plants was transferred to outside suppliers who placed tool orders.

The NMTBA, however, is optimistic that tool orders will improve in upcoming months because of increasing U.S. exports. Between June and July, metal cutting tool exports rose 8.7% and metal forming tools rose 56.1%. For the year to date, exports of metal forming tools rose 127.9%.

“A drop in new orders at this time of year is characteristic of the machine tool industry; therefore, it’s hard to interpret this month’s data,” James Gray, president of the association, said in a statement. “We’re hopeful that in the fall the improving trends that emerged in late spring and early summer will continue.

“With a dollar at a much more realistic level than it’s been in many years, American-made machines tools are becoming more competitive in the international market, a fact reflected in our improving export orders,” Gray said. “Foreign tools are no longer the bargain they once were.”

Eli Lustgarten, an analyst in New York for Paine Webber Inc., said he expects the industry outlook to brighten by the start of 1988, as industries that use machine tools begin to gain strength.

However, some analysts were less enthusiastic.

“Despite the fact that the dollar has declined by a substantial amount, it hasn’t affected machine tools,” said Christine Chien, New York analyst with Prudential-Bache Securities Inc.

Chien also said that voluntary agreements with Japan and Taiwan, which went into effect at the beginning of the year, have not yet affected the industry. Under the pacts, those countries will restrict exports to the United States for five years.

“The basic thing is that the demand for the machines is slow. If you’re not selling a lot to begin with, it’s (the voluntary agreements) not much of a big deal,” said David Sutliff, an analyst with Salomon Brothers Inc.

In its monthly statistical report, the tool industry trade association also said that July orders were down 4.2% from orders of $170.0 million in July last year.

The association said metal-forming tool orders fell 30.9% last month to $60.7 million from a revised $87.8 million in June, and were up 47.3% from $41.2 million in July, 1986.

Metal-cutting tool orders totaled $102.2 million in July, off 11.1% from a revised $115.0 million in June and 20.7% below the $128.8 million in new orders for the year-ago period.

The association said the backlog of orders in July was $1.06 billion, off 3.3% from the revised June backlog of $1.09 billion and 13.2% below the backlog in July last year.

The association said total shipments of machine tools fell 15.2% last month to $197.8 million from a revised $233.2 million in June and were up 4.1% from the $190.1 million in orders in July last year.

Last month, the association reported the June total shipments of machine tools at $233.5 million.