A Better Indicator of Economic Vitality

How would you rate a country’s economy? Point to its GNP? GDP? Output per person? Per capita income? These are all helpful measures of a nation’s economic health. But there’s another one I use as well that measures manufacturing activity

How would you rate a country's economy? Point to its GNP? GDP? Output per person? Per capita income? These are all helpful measures of a nation's economic health. But there's another one I use as well that measures manufacturingactivity like no other. It's PCCMT and it is a most revealing statistic indeed.

Those letters stand for Per Capita Consumption of Machine Tools and they tell a very basic story about production and national economies. Simply put, the PCCMT expresses a country's manufacturing activity in relation to its population.

A couple decades ago, we were the leading country in terms of total machine tools produced and consumed (i.e. bought). And, we had the highest PCCMT numbers. Today, guess where we are? We're not at the bottom by a long shot, but we haven't been the leader in this super-important indicator for a long time. We come in 16th at about $17 per person, just ahead of Belgium at a little over $16 per person, and the U.K. with around $14 per person, which of course was the world leader before the U.S. emerged in the mid-20th Century. We are just behind Croatia and France.

All five of these countries are way behind the current leaders. Who are they? The country that has been Numero Uno for some years has now slipped to second place. That's Switzerland, which lost its top ranking last year to Taiwan. The Swiss consumed nearly $102 worth of machine tools last year per person. The Taiwanese consumed over $111 worth per capita.

Mainland China rates 24th on the list of 31 countries with a per capita level of $7.13 but it was, once again, the largest purchaser overall, consuming a total last year of $9.3 billion worth, an amazing 37 percent increase over 2003! The U.S. bought a bit more that $4.9 billion worth last year. Japan, with a gross total of over $5.9 billion ranked 7th last year in per capita consumption. Germany, another historical leader in manufacturing technology, purchased about $5.4 billion giving it the 3rd place ranking.

Other major consumers included 4th ranked South Korea at nearly $3 billion total. Italy, also a perennial leader in the industry purchased over $3.3 billion and ranked 5th in per capita consumption. Spain purchased over $1 billion worth of machine tools and ranked 13th in per capita spending.

OK, so what about production numbers? I'm sure you can guess which economies were the leaders last year in the production of machine tools. Yes, Japan remains Numero Uno as it has for some 15 years, turning out over $10.5 billion worth of machine tools. And, right again, Germany came in a close second, producing over $9.2 billion in 2004. Third place? Italy at $4.7 billion. Fourth place, however, may surprise you. It was China. The People's Republic manufactured $4 billion worth of machine tools followed by Taiwan at over $2.9 billion. Americans, with the help of a dozen or so Japanese transplants, turned out $2.8 billion worth last year putting the country in 6th place.

What are we to make of all these numbers? We're doomed and we better start studying Chinese? We're headed into poverty and we better go back to farming? Of course not, but there are some telling trends here that reflect the continuing realignment in the global economy and some terrific challenges for Europe and the United States.

Machine tools, like robotics and material handling, are a relatively small industry. The total global industry, somewhat more than $50 billion a year in sales, is smaller than some corporations. But, like those other two industries, it is basic. No modern economy is modern for long without them.

So far, I would say we are holding our own. A $10 trillion economy is no slouch. Yet, compared to just 20 years ago, the United States has slipped in practically all industries from a clear Numero Uno to lessthanleader. Are we following the U.K. into mediocrity in manufacturing?

Per Capita Machine Tool Consumption

Country................................$/Capita

1. Taiwan ....................................$111.24
2. Switzerland .............................$101.69
3. Germany....................................$64.95
4. Korea, Rep. of ..........................$60.27
5. Italy ..........................................$57.12
6. Austria ......................................$46.95
7. Japan ........................................$46.52
8. Czech Republic ..........................$43.33
9. Canada.......................................$34.58
10. Sweden ...................................$29.86
11. Denmark...................................$29.60
12. Finland .....................................$28.58
13. Spain .......................................$25.38
14. Croatia .....................................$20.90
15. France .....................................$19.92
16. United States...........................$16.83
17. Belgium ....................................$16.44
18. United Kingdom........................$14.31
19. Netherlands .............................$14.08
20. Thailand ...................................$12.53

Source:
Gardner Publications, Inc.
(gardnerweb.com)

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