General manufacturing cycle law

Since the beginning of this century, the general manufacturing industry has experienced six cycles, and the current cycle is at the bottom

Looking back at the rapid development of the industry since the 21st century, the general manufacturing industry has mainly experienced six cycles, each round of 3-4 years, consistent with the order cycle (Kitchen cycle). We use metal cutting/forming machine tool output growth rate and general/special equipment industrial added value growth rate to measure, all indicators reflect a relatively consistent periodicity, and the characteristics of the same frequency resonance strengthen year by year. In addition, the growth rate of professional equipment is similar to that of general equipment, because although the downstream landscape cycle of each segment of professional equipment is different, the statistical caliber of the overall professional equipment smooths the cycle characteristics of each segment downstream, and most parts of professional equipment are general parts. Overall, since 2002, China’s industrial automation industry has mainly experienced six cycles: 1) the first cycle from the first quarter of 2002 to the third quarter of 2006, the general manufacturing industry boom mainly due to the accession to the WTO orders and expectations increased sharply, thus pushing up a cycle of nearly 4 years; 2) The second cycle from the fourth quarter of 2006 to the second quarter of 2009 was mainly driven by external demand, real estate and the Olympic Games economy, and the subprime mortgage crisis triggered the global economic crisis. The current cycle declined rapidly and the duration was relatively short; 3) The third cycle from the third quarter of 2009 to the third quarter of 2012, after the subprime crisis, the “4 trillion” plan continued to push forward, real estate investment drove the current cycle, and then ended due to the economic slowdown; 4) The fourth cycle from the fourth quarter of 2012 to the fourth quarter of 2015, overseas entered a long cycle of interest rate hikes, the domestic economy shifted and slowed down, the overall growth rate of this round was low, and the supply-side reform accelerated the current cycle; 5) The fifth cycle from the first quarter of 2016 to the first quarter of 2020, supply-side reform to reduce excess capacity, corporate profit recovery, industrial robots and the development of “Internet +” drove the current cycle, and in 2018, it began to be affected by factors such as Sino-US trade friction, and the current cycle gradually declined, and then ended due to the accelerated cycle of the “new coronavirus” epidemic; 6) The sixth cycle Since the first quarter of 2020, the sudden combination of cyclical factors of the novel coronavirus epidemic has deepened the bottom of the last cycle, and also raised the cycle peak under the low base effect. The global epidemic has caused the cycle mismatch at home and abroad, which has also led to the lengthening of the current cycle, and it has now entered the bottom of the cycle and a new round of upward cycle is about to begin.

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Inventory and credit levels have a strong lead for general manufacturing

How to track and predict general automation cycles? It is necessary to explore the core influencing factors of changes in capital expenditure of industrial enterprises. In theory, the growth rate of fixed asset investment in manufacturing industry is directly related to the general automation cycle. However, from the perspective of index fit, the resonance effect is not obvious, mainly because a large proportion of fixed asset investment in manufacturing industry is plant and other fixed asset investment, rather than equipment investment, which cannot completely represent the general manufacturing industry, so it is necessary to track and forecast from the perspective of enterprise equipment expenditure.

From the historical data, the volume and price data of general manufacturing industry and general equipment output boom is relatively synchronized, which is the comprehensive result of the superposition of the production capacity and expectations of various manufacturers, while the capacity utilization rate of industrial enterprises is slightly lagging behind, so when the volume and price of manufacturing industry boom, general equipment will also boom, and the volume and price index of manufacturing industry has a weak lead for general equipment. The new orders component of PMI, PPI year-on-year and industrial added value year-on-year respectively represent the prosperity of orders, prices and income of industrial enterprises, which are relatively synchronized with the general manufacturing cycle on the whole, while industrial product prices lag slightly in some periods. In short, the capacity digestion and production expansion of some manufacturers precedes the operation optimization. The capacity digestion and expansion of another part of the manufacturers were later than the operation optimization, which superimposed on each other to produce the comprehensive result of the change in the same period. The expansion logic commonly adopted by China’s industrial enterprises is “equipment replacement – capacity utilization rate climbing”, rather than “capacity utilization rate rises to the bottleneck – purchase of new equipment to alleviate”, the above logic indicates that China’s industrial production continues to be in the active transformation and upgrading.

The correlation between the growth rate of fixed asset investment in manufacturing industry is not significant due to the caliber. Although the business indicators of industrial enterprises have good tracking characteristics, they are not forward-looking. Therefore, it is necessary to find forward-looking indicators to predict the cyclical changes of general manufacturing industry. The market generally recognizes that credit expansion and inventory changes are forward-looking, our explanation is as follows: credit expansion is ahead of capital expenditure, the core is that credit is the main source of capital expenditure, enterprises need to make credit preparation in advance for capital expenditure; Inventory change is forward-looking, the core reason is that inventory changes ahead of the business boom, boom up stage often corresponds to the bottom of the inventory, and at the peak of the boom has begun to accelerate the replenishment, through the comparison of indicators confirmed that the business boom and capital expenditure are the same frequency, so the change of enterprise inventory is also ahead of capital expenditure. We choose M2 growth rate to represent the pace of credit expansion and the growth rate of finished goods inventory of industrial enterprises to represent the pace of inventory change. The negative correlation between inventory growth rate and M2 growth rate is obvious, and both of them have good foresight in the fundamental changes of general manufacturing industry.