Aerospace Market Forecast Source: AMD
It seems more and more speculation rocks the aerospace market. Nearly every economic indicator points to growth, albeit modest growth. Passenger and cargo traffic hit new highs, aerospace firms on average more than beat Wall Street market predictions, interest rates are flat, and aerospace continues to add jobs. The biggest fear is the impending cuts in DoD spending, which could cost thousands of jobs especially among Tier 2 and Tier 3 manufacturers. The question is where will we go from here? Now is the time to plan. Trust Your Indicators!!!
The Aero Indicator has more than leveled off in recent months, and now is sliding, but is still up the January 2011 level of 101.59. In August 2011 it hit an index of 103.87, down from 106 in May 2011, meaning the industry will see about a 4% annualized rate of growth during the next six months. Next time, however, we are expecting the Aero Indicator to fall again, among other things, due to the uncertainty in government spending that accounts for more than half of aerospace manufacturing spending.
Since January 2011, the index has risen from 95 to about 101.10 and is now at its highest level since 2008.
The capacity of factories continue to rise, but still not back to the peak of 88 in 2007. The index is up from about 71 in January 2011to more than 76, yet the sector has 24% of capacity idle.
Jobs, Jobs, and Jobs!! Aerospace continues to be a job engine. More than 12,000 net new jobs have been added since January 2011. (NAICS3364).
Passenger traffic continues to rise at a 3.35% annual rate from May 2010 to May 2011. We found the latest data showing nearly 70 million passengers flying domestically each month.
In millions of tons, air cargo and mail has grown from 1.64 in February 2010 to 1.89 in May 2011, up from 1.77 in January 2011.
Aerospace profits show a disturbing trend. While aerospace firms with assets of more than $25 million dollars continue to earn more than $4 billion, on average, each quarter during the past year ($4.032 in Q1 2011), smaller firms with less than $25 million in assets have averaged near or below zero during the past year. Fortunately, in Q1 2011, after two quarters of losses, smaller firms returned to profitability with $40 million in net income.
Congress is in a pickle to balance a budget where spending for 2011 is expected to exceed revenues by 40%. The DoD will lose more than previously estimated. Barr Group estimates total procurement to fall by about 7% in 2012 and aerospace, the largest part, to fall by slightly more than 5%. Congress is currently considering up to a $95 billion dollar cut in each of the next ten years.
While nearly all other U.S. goods markets show imports exceeding exports, aerospace continues to buck that trend with another trade surplus. Exports grew faster than imports in Q2 2011. We imported about $9 billion but exported nearly $22 billion.
Monthly civil aircraft sales rose by 53.24% since January 2011, while engine sales were only up slightly. The U.S. aircraft backlog continues to rise and the outlook is very positive for the rest of the year.