IMTS 2006 begins at McCormick Place in Chicago on September 6. This year’s “machine-tool show” promises to be a stunning display of manufacturing technology—all aimed at making companies worldwide more productive.
Too often we are hung up on the need to increase the productivity of U.S. companies, and we lose sight of the need for worldwide increases in productivity. If we plan to increase the share of global trade owned by the United States, we all better hope that the workers of emerging countries become more productive. This added productivity will lead to greater discretionary income available for purchasing those higher-value-added goods that American companies and workers can make and ship profitably.
The value of productivity is starkly outlined by the battle lines that the U.S. Federal Reserve Bank has established in targeting the recent increases in inflation. The fact of the matter is that inflation is and has been a steadily eroding factor in all of our purchasing power.
My reference to the upcoming IMTS 2006 is a good personal example of the impact of inflation over time. My first visit to a “machine-tool show” was in September 1965 at the International Amphitheater, or “stockyards.” For the average reader of this column that might be analogous to me writing about the drawings on the cave walls in France, but bear with me for a moment. I may be accused of being a “packrat,” but I actually have my expense report from that show. It documents that on September 21, 1965, I spent $1.75 for breakfast with a 30 cent tip and $6.90 for dinner with a 90 cent tip. A cab fare to O’Hare Airport was $2 with tip as I went to catch my DC3 flight back home. Since my hotel was centrally billed through the company, I have no idea what my room cost except that I remember my roommate snored loudly.
My guess is that my breakfasts at IMTS 2006 will be in the neighborhood of $17 with tip if I’m lucky, and dinners in Chicago will most likely be in the $70 to $80 range if I eat lightly. Somehow I think the recipe for orange juice in the morning or Caesar salad in the evening has not changed all that much in the 41 years since 1965, but the prices sure have.
Where am I going with all of these musings? I am headed toward one of the major value opportunities from in-vesting in machine tools. That is, they are a great buy and their prices have been one of the few bright spots in the war on inflation. The Bureau of Labor Statistics (BLS) has records tracking the price index for metal-cutting machine tools from 1970. The chart above shows the base month (index value of 100) for these prices as June 1983.
As you view this chart of indexed prices for metal-cutting machine tools, you might consider that a machine tool that cost you about $30,000 in 1970 now would cost you, 36 years later—if such an animal existed—about $158,000. The multiplier on pricing is about six times. The multiplier for metal-forming machine tools is slightly higher. The multiplier on my breakfast at IMTS will be about eight times, and my cab fare about 12 times. Over that same time the price multiplier on the car you drive is probably about nine times.
The important thing to remember is that comparing the pricing alone of a 1970 machine tool versus a 2006 machine tool doesn’t come close to telling the whole story. Would any reader of this article feel competitive if he were operating a machine with a 1965 “state-of-the-art” G.E. Mark Century 100 control today?
Increased produc-tivity is all about saving a penny here and a penny there, and doing more with less. As inflation eats away at everything we use or consume, it is comforting to know that an investment in a new machine tool beats the overall inflation statistics, especially given the fact that the penny you are trying to save now costs the U.S. Mint 1.23 cents to produce.
Enjoy IMTS 2006, and feel good about making your investments in new and more productive machine tools. Show your accounting department this article when you turn in your expense report and they should be more understanding.
