The Marginal Buyer Is Driving Machine Tool Consumption

The latest report from Gardner Intelligence sees machine tool consumption increasing 11 percent to $7.748 billion in 2019.

The 2019 Capital Spending Report projects accelerating growth for the machine tool market in 2019. The latest data from Gardner Intelligence sees machine tool consumption increasing 11 percent to $7.748 billion in 2019, with growth occurring across all machine types. This follows increases of 3 and 6 percent in 2017 and 2018 respectively.

In 2018, machine tool prices rose and delivery times lengthened as the demand for capital equipment outpaced the supply. Given the planned spending by machine shops detailed in the report, prices are likely to climb higher and delivery times will remain relatively long as demand remains strong. Of particular note, job shops and manufacturers in the North Central-West and Southeast regions are poised to experience the highest rates of growth in the country.

What is driving these changes?

According to the old economic adage, “Prices are set at the margin.” The concept is an important one that helps to explain the supply, demand and prices of machine tools.

Any market, including the market for machine tools, has a core set of buyers. Typically, these buyers make purchases regardless of economic conditions for strategic reasons. However, there are other buyers who move in and out of the market based on fluctuating criteria, making up the fringes – or margins – of the market. In the case of machine tools, increasing new orders or backlogs, lack of capacity to take on new work, or a need to replace a machine that keeps breaking down are all examples of reasons why a marginal buyer would enter the market. Because the core set of buyers purchase regardless of economic factors, it is the marginal – the additional – buyers that have the greatest influence on supply and demand, and therefore they have the greatest influence on prices.

In the metalworking industry, the major factor that helps identify the marginal buyer is the facility size, as larger facilities – those with more than 100 employees – have a large enough volume of work and enough financial resources to always be in the market for machine tools, making these facilities the core set of buyers. On the other hand, smaller metalworking facilities tend to buy machine tools because of an immediate need, as they do not have the financial resources of larger facilities. Because they tend to be less regular buyers in the machine tool market, it is the smaller metalworking facility that is the marginal buyer,  which means the smaller machine shop has a greater impact on the supply and demand – as well as prices – of machine tools.

Data from the Gardner Business Index (GBI) and the 2019 Capital Spending Survey by Gardner Intelligence supports the conclusion that the small shop is the marginal buyer. For more information, including the specific projections Gardner Intelligence has for capital expenditure, check out the Capital Spending Report.


Top Shops

‘Top Shops’ is a benchmarking and recognition program designed to help shops build their business.

World Machine Tool Survey

An independent annual survey that collects statistics from machine tool consuming and producing countries and compares them in real U.S. dollars.

Capital Spending Survey

An annual survey that collects statistics regarding budgeted spending on machine tools, testing equipment, software and more.

Gardner Business Index

A diffusion index measuring month-to-month changes in activity at durable goods and discrete parts manufacturing facilities.