Tooling Up

The U.S. machine tool industry, which makes the machines that other industries use to produce $174 billion worth of the nation's durable goods, is in the midst of the greatest upsurge in new orders in seven years. Machine tools range from simple drilling and stamping presses to wondrously complicated automated machines that bore an auto engine block in one continuous process. Since they sometimes take as long as two years to build, new orders are a key indicator of how businessmen feel about the future. For the first quarter of 1963, U.S. machine toolmakers received $206,700,000 in new orders, a 21% rise over the same quarter a year ago. And the trend continues strongly upward.

One reason for the upsurge is that ever since World War II the average age of U.S. machine tools has been rising steadily (see chart). The latest census of the American Machinist magazine (taken only every five years) showed last week that 64% of the nation's machine tools are now ten or more years old v. only 38% in 1945. Though many of the older machines included in the count are not in use because enough newer ones are available to satisfy current demand, the census nevertheless is a dramatic warning that U.S. industry is in danger of getting rusty.

Most burdened with aging equipment are the railroad equipment makers, 89% of whose machine tools are ten years or more old, the farm machinery makers (81%), and the metal producers (72%). The areas with the most obsolescence are Pittsburgh, where 75% of all machine tools are at least ten years old, and Cincinnati, with 71%. Not surprisingly, the newest tools are found in the electronics and aerospace plants on the West Coast.

A machine tool does not necessarily wear out after ten years, but by that time a new model has usually been developed that does the job more efficiently and at a lower cost. Partly because their plants were either blown up or worn out by the war and partly because of more liberal tax and depreciation allowances, the Europeans have outdistanced the U.S. in modernizing; 59% of Britain's machine tools are under ten years old, 58% of France's, and an estimated 85% of West Germany's. In the Soviet Union about 50% are under ten years old, but age and productivity are less interrelated there: most Soviet machine tools are mass-produced and less efficient than Westernmade machines.

To try to catch up, U.S. businessmen plan to concentrate two-thirds of their projected $40 billion in capital spending this year on modernization. The Government has helped to get them moving. Under the Administration's new depreciation allowance, companies can depreciate new equipment 18% faster than before; under a more liberal tax credit plan, they can deduct 7% on plant modernization costs from their taxes. The Treasury estimates that these two plans place an additional $2.5 billion at the disposal of U.S. companies this year. Businessmen seem eager to reach for the new tools that the machine tool industry is anxious to supply.

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