output than to the swings in, for example, plant and equipment expenditures.2 Finally, the negative and highly significant sign on the time variable indicates that over time, one additional dollar of output by American industry requires less tools and dies than previously. If we can interpret the equation with more confidence than is perhaps justified, it states. that a dollar's worth of output in 1967 would require 5% less tool and die output than it did the previous year. INDEPENDENT VARIABLES We must now project the values of the independent variables. Value Added by Manufacture While several estimates of future GNP are available, no projections of manufacturing output were found. However, an estimate can easily be derived from GNP projections. As Figure B-2 shows, the ratio of manufacturing GNP to total GNP has been generally steady. The median ratio in the period was 32.2%. Defense Expenditures There is no realistic way to predict defense expenditures for so far in the future. However, for several years before the Vietnam buildup, they remained relatively constant. We shall simply assume that in 1975 and 1980 the U.S. will be involved in no major foreign crises and that real defense expenditures will be at their 1965 level of $45.6 billion.3 Plant and Equipment Expenditures 5 The Joint Economic Committee study cited above estimated nonresidential fixed investment at 11.3-12.3% of GNP. However, they point out that this was obtained as a residual, and that such high investment rates could not be sustained for long. A better estimate might be the ratio of 10.2%, which existed in 1965, a ratio that is as high as could conceivably be maintained. Since plant and equipment expenditures have averaged approximately 72% of nonresidential business' fixed investment in recent years, we shall assume that plant and equipment expendi 2 Note that the coefficient on A is not statistically significant. Its negative sign appears to derive almost solely from the two years 1955 and 1956 when tool and die output and auto output moved sharply in opposite directions. Therefore, little significance should be attached to the sign on the coefficient. The primary impact of the automobile industry on tool and die output arises from the substantial impact of automotive plant and equipment expenditures on tool and die demand. This impact shows up in the large and significant coefficient on plant and equipment expenditures. 3 This same assumption is made in Joint Economic Committee, U.S. Congress, U.S. Economic Growth to 1975: Potentials and Problems (Washington: U.S. Government Printing Office, 1966), p. 18. p. 27. + Ibid., VALUE ADDED By Manufacture tures will be 7.3% of GNP. While this is lower than the 1965 peak rate of 7.7%, it is the highest rate which could possibly be sustained. Motor Vehicle Expenditures Between 1951 and 1965 the median ratio between output of the motor vehicles and parts industry (SIC 3717) and GNP was 1.91%. Since this relationship indicated no apparent trend, value added by manufacture in this industry is assumed to be 1.91% of estimated GNP in 1975 and 1980. This estimate is consistent with other estimates of automobile industry output in 1975 and 1980. Projection of Output Since all variables are projected either as constants or as some proportion of GNP, we are able to derive several estimates of tool and die output based on a variety of plausible assumptions about the rate of growth of GNP. Table B-1 indicates the level of estimated GNP in 1975 and 1980, assuming productivity increases of 1.9-2.7%, and unemployment rates of 4 and 5%. Table B-2 gives the levels of tool and die output predicted by our equation for each level of estimated GNP. It should be re-emphasized that the estimates of tool and die output in Table B-2 are subject to error, perhaps even substantial error. The underlying assumption of the forecast should be recalled: that the relationships between sectors of the American economy in 1980 will be the same Elgass, loc. cit., pp. 404-05. FIGURE B-2. Relationship of Manufacturing GNP and Total GNP (in Billions of 1957-1959 Dollars). * From Energy and the Michigan Economy, p. 49, corrected for differences in price index. as the relationships which existed in the 1951-65 period. Should any of these relationships change dramatically, or should any of the independent variables deviate markedly from their predicted values, tool and die output would differ substantially from its predicted value. Furthermore, since this is a long-term rather than cyclical projection, no allowance is made for the stage of the business cycle in 1975 or 1980. Should these prove to be either exceptional boom years or recession years, the forecast would be affected. Despite these warnings, our forecasts appear to be reasonable. The median forecast of 1980 output, $2,551 million, implies a growth in output of 112.8%. This is virtually identical to the 108.5% growth in the preceding 15 years, 1950-65. Since the median projected growth of GNP is only 89%, the GNP relative will rise. The forecast GNP relative, .221%, is substantially above the 1951-65 median of .198%, and exceeds any GNP relative attained since 1957. As was previously noted, the time trend in the equation is negative; each year one dollar of U.S. industrial output requires, on the average, 5% less tool and die input. It is difficult to square this fact with the 7 The GNP relative is the ratio between value added in the tool and die industry and GNP; it is the proportion of GNP generated by the tool and die industry. predicted increase in the GNP relative. The reason for this increase is that the high rate of growth in GNP that has been forecast would require a very high rate of increase in plant and equipment investment. Since a dollar spent on plant and equipment requires a greater expenditure on tools and dies than a dollar spent on most other manufactured goods, this shift in the composition of production away from general manufacturers and toward plant and equipment investment would cause an increase in the GNP relative, in spite of the negative time trend in the relationship between tool and die output and general manufacturing output. If the predicted level of investment occurs, then tool and die output should reach the predicted levels. Nonetheless, it appears that if the estimates are in error, it is likely that they are too optimistic rather than too low. The estimates of tool and die "output" are actually estimates of the demand for tool and die output. Should the industry be incapable of furnishing the desired output, or of providing it only at a substantially increased price, then the projected output will not actually take place. The ability of the industry to generate the predicted level of output has been described in Chapters Nine and Ten; their conclusions need not be repeated here. It is sufficient to say that increases in the industry's capability will have to be substantially larger than in the 1951-65 period if the output is to be generated. SUMMARY The tool and die industry is a "feast or famine" industry. When the economy is healthy and growing rapidly, the industry prospers; when it is sick and sluggish, the industry suffers. The recent boom, the longest in modern American economic history, seems to justify relatively rosy projections of GNP. Should these projections prove true, the available evidence indicates that the tool and die industry will prosper. The industry may still, of course, experience substantial problems. Some way must be found to increase productivity and to increase the flow of new workers into the industry. The problem of meeting demands which exceed the industry's current capacity is, however, much more welcome than the problems of insufficient demand and excess capacity, which have sporadically plagued the industry in the past. Actual total for product; other totals shown are approximate. TABLE C-2 VALUE OF SHIPMENTS AND EMPLOYMENT IN THE TOOL AND DIE INDUSTRY (SIC 3544) FOR 1947-66* The original figures for 1947-53 are for the cutting tools, jigs, fixtures, etc. industry group (old SIC 3543). The 1954 amendment by the Bureau of the Budget to the Standard Industrial Classification divided "old" SIC 3543 into the special dies and tools industry group (old SIC 3544) and the metalworking machinery attachments industry group (old SIC 3545). The original figures for 1954-57 are for "old" SIC 3544. The present special dies and tools industry group (SIC 3544) is the result of the 1957 Standard Industrial Classification revision which again resulted in a new definition of this industry. These are the original figures which appear for 1958-66. (Footnote continued overleaf.) |