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Oil stays at the top of the list for U.S. imports this year while electrical machinery has moved ahead of vehicles as the leading U.S. export. Machinery of all kinds showed strong results for both imports and exports, while aircraft and raw materials also performed well.

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Although the U.S. consumer market increasingly battles rising gas prices and higher interest rates, the global economy remains strong, which is good news for most of the big multinational U.S. firms on this year’s list.

Aviation & Aerospace

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After a few lean years, the aviation and aerospace industries are getting their stride back in a number of segments—civil and military as well as passenger and airfreight. Obviously, the trade boom with China has boosted business, but so too have emerging markets in both the Middle East and Africa.

According to the Aerospace Industries Association (AIA), civil aviation sales; including commercial jets, general aviation aircraft, helicopters, engines, and parts; led all sectors, increasing 20 percent last year to $39 billion. Orders increased 15 percent to $187 billion, and for the second year the number of commercial jetliners delivered rose, an increase of seven to 290.

Meanwhile, the industry has been successful in lobbying the Commerce Department and the Bush administration to ease export controls on aerospace and defense-related technology to countries such as China, despite the controversy concerning U.S. national security. The original list of controlled items numbered in the hundreds, but has been scaled back to less than 50.

Airplanes are one of the top export sectors for the U.S. and it was also one of the sectors with the biggest gains from the first quarter of 2005 compared to the first three months of this year.

Boeing—the world’s number two commercial jet manufacturer—marked a banner year in 2005 with 1,022 orders. The company’s profits and revenues for the first quarter of this year (both in the double digits) were the best since at least the early 1990s.

Chemicals

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This broad industry is a solid performer in both the U.S. export and import sectors and is in the midst of strong growth and profitability. Similar to other industries, consolidation is ongoing within the chemical industry, which makes for bigger and wealthier companies who are simultaneously enjoying rising prices for their products, particularly for those with petrochemical operations such as Lyondell Chemical, which saw a nearly 212 percent increase in revenues last year.

Andrew N. Liveris, CEO of top-ranked Dow Chemical, said the company had its “best year ever” in 2005 despite some tough obstacles. “Two thousand five was a year with many challenges for our company, including relentlessly escalating feedstock and energy costs and two major hurricanes that caused significant disruption to Dow’s operations on the U.S. Gulf Coast and to our logistics across the region,” he noted. “Against that backdrop, our results were very good indeed. By nearly every measure, this was a record-setting year for Dow.”

The impact of higher oil costs can’t be overemphasized, though, when you consider that about 58 percent of U.S. petrochemicals are made from natural gas and natural-gas liquids, according to the American Chemistry Council. And, about 41 percent come from oil and 1 percent from coal.

DuPont’s economist Robert H. Shrouds reports that raw material costs (for those derived from oil and natural gas) rose 16 percent in the first quarter of this year compared to the same period last year and 85 percent since 2002, which has prompted the company to announce another price hike on most products for the second time in less than a year.

Computers & Office Equipment

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Like the chemical industry, computers and office equipment is another example of an industry which ranks high in both exports and imports. Not surprisingly, worldwide expansion in the PC segment is driving growth at companies like IBM, Hewlett-Packard, Dell, and Apple. Fortunately for them, there doesn’t seem to be much to stand in the way of future expansion either.

According to Computer Industry Almanac Inc., the number of PCs in-use exceeded 900 million units worldwide in 2005, with the U.S. leading by over three times as many PCs as second-place Japan. In fact, the U.S. is forecast to have more PCs in-use than people in five or six years. PCs per capita in the U.S. have reached 78 percent and will remain higher than cell phones for a few years. The U.S. and Canada are the only two countries than have more PCs in-use than cell phone subscribers. Naturally, the number of Internet users globally is also growing and surpassed the 1 billion mark in 2005—up from 420 million in 2000. The 2 billion mark is expected to be reached in 2011.

Although growth in the U.S. and other countries is likely to slow, countries such as China, India, Brazil, Russia, and Indonesia are just starting to take off. At the same time, the PC is expanding its domain with new product categories such as Media Center PCs, tablet PCs, Ultra-Mobile PCs and handheld PCs. The rapid growth of mobile PCs is the major reason for current and future PC expansion, reports Computer Industry Almanac Inc.

In the meantime, much of the industry’s growth will continue to build on the ‘new today, obsolete tomorrow’ strategy, which means existing PC owners will continue to upgrade equipment to the latest and greatest.

For example, the single-core processor is the latest to become ‘history,’ as IBM and Hewlett-Packard both have introduced new systems based on Intel’s dual-core chips. Intel expects by year’s end that 85 percent of all processor shipments from the company will be dual-core.

General Merchandisers

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Industry giant Wal-Mart has the department store category covered, but even Wal-Mart may be impervious to the ongoing pressures of rising oil costs and other drags on American consumers. Many analysts believe that while rising gas prices have thus far not tempered consumer spending, the longer gas prices persist in the $3 to $4 dollar range the more likely the effects will begin to appear, and they already have in measures of consumer confidence. Compounding the more conservative outlook for the overall industry are rising interest rates, a falling stock market, rising housing costs, and a weaker job market.

Wal-Mart’s overseas strategy will likely figure prominently this year, especially if India opens its market to foreign direct investment, which is likely. India’s highly coveted $250 billion retail sector is the eighth-largest in the world and is expected to double in size by 2010. Wal-Mart is also likely to be the first foreign company to set up shop there.

By contrast, U.S.-focused Target could have a tougher time in 2006 not only because of because of the economy but also due to increased competition from Wal-Mart, which is remodeling 1,800 stores to go after higher-paying consumers, a demographic that has been Target’s domain.

The National Retail Federation estimates that U.S retail sales, excluding automobiles, gas stations, and restaurants, will increase 4.7 percent this year, compared to last year’s better than expected 6.1 percent gain. The stand-out categories of specialty retailing are expected to achieve solid sales growth, particularly clothing and accessory stores (which include shoe stores and jewelry stores), food and beverage retailers, and health and personal care retailers. These categories are likely to see steady sales gains in the 4 to 5 percent range.

Household & Personal Products

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Procter & Gamble is the world’s largest household and personal products company with over 170 manufacturing facilities in 40 countries along with roughly 20 R&D centers. Along with other multinationals in recent years, the company has zeroed in on extracting supply chain efficiencies to improve competitiveness and improve the bottom line. In particular, P&G’s consumer driven supply network (CDSN, an initiative that’s been in place for three years) aims to respond to demand versus forecast, and it’s been successful in improving manufacturing flexibility and cycle response time.

Rick Ciccone, director of supply chain operations for P&G, said in an interview recently: “We consider that ‘the consumer is boss,’ and retailers are responding, which puts new pressure on manufacturers.” He explained that, “Historically, companies would start at the manufacturing point and push inventory out to retailers and push it into warehouses.”

But for P&G, “information replaces inventory,” and this model has become even more apparent with the company’s acquisition of Gillette (which became effective last October). Now, the company will have to rely on information even more so as it pursues its growth strategies—attention to its core business; seeking faster growing, higher margin, more asset-efficient Beauty and Health Care business; and developing markets and lower income consumers.

The outlook for the industry as a whole is very positive, with segments such as skincare positioned for robust growth. Market research firm The NPD Group reports that skincare was the second fastest-growing beauty category in prestige department stores in 2004. Studies show that 89 percent of women said they use skincare products more than any other beauty item (even more than makeup, which accounts for 84 percent). This bodes well for the other leading companies in the industry, including Kimberly-Clark, Colgate-Palmolive, Avon Products, and Estee Lauder.

Industrial & Farm Equipment

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The booming global economy is responsible for the gains made in this sector, especially where infrastructure upgrades are concerned, and that obviously encompasses a lot of activity worldwide.

“Underlying business conditions and demand for our products continue to be strong,” said Caterpillar chairman and CEO Jim Owens in April. “The fundamental strength of the industries we serve—notably global mining, infrastructure construction, oil and gas, and energy—continued to improve.”

The company reported record first quarter 2006 sales and revenues of $9.392 billion and record first quarter profit of $840 million, or $1.20 per share. Sales and revenues increased 13 percent, and profit per share was up 48 percent compared with the first quarter of 2005. “I’m very pleased with our performance in the first quarter; it’s a great beginning to the year,” Owens concluded.

In the U.S. market, Caterpillar is seeing some pickup for machinery sales compared to the slowdown that occurred in the fourth quarter of 2005, with funding as a result of the Federal Highway Bill helping to boost new contracts and construction. Likewise, machinery sales in the Latin American market experienced the biggest improvement among all other world regions, thanks to low interest rates and higher capital flows, which led to good economic growth and increased construction spending. High metals prices in the region also encouraged rapid growth in mining investment and led to larger machine sales.

Motor Vehicles & Parts

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American automakers and parts suppliers are coming off a difficult year, yet there are signs that the turnaround plan for leader General Motors is starting to pay off. Outgoing CEO Rick Wagoner was forced to close or idle 12 facilities in North America and trim pensions and health care costs to keep the company out of bankruptcy, and his successor, Troy Clarke, will be charged with sustaining some momentum and reversing the company’s sliding market share (the company’s share prices have dropped by more than one-third over the past two years).

There are some bright spots, however. GM’s Asia-Pacific division turned a $453 million profit in the first quarter of this year, compared to the $503 million loss from North American operations.

And while the Asia-Pacific region will remain hot, GM is the latest automaker to venture in the Russian market with an agreement to invest $200 million to build a new factory outside of St. Petersburg. Ford, Renault, and Hyundai already assemble vehicles in Russia, while Toyota and Nissan have announced plans to build new factories there also.

The American market may also get a boost from a host of new products that GM is promising to introduce. “We have the insider’s view and we know what is coming over the next three years and it is going to be an array of products that is going to be best-in-class. That’s a focus we lost for about 30 years,” said vice chairman Bob Lutz recently, who believes GM will bounce back with a stronger offering of vehicles. At the same time, the company in May announced plans to subsidize gas prices for drivers of its vehicles in California and Florida in order to boost sales.

Nonetheless, industry analysts predict slow SUV sales coupled with high gas prices will continue to hurt American auto makers, and GM stands to get hurt the most because it’s trying to wean itself off incentives and fleet sales, and because it relies heavily on truck-based SUVs.

Network & Other Communication Equipment

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The constant innovation occurring throughout the wireless networking world has kept companies like Motorola and Cisco Systems busy and profitable, despite the expectation from consumers for cheaper priced computers, home electronics, and mobile devices.

At the same time, companies are expanding their products and services into more lucrative areas. For instance, Motorola is concentrating on branded wireless, broadband, and automotive communications technologies, such as its Razr mobile phones. Cisco Systems, meanwhile, is moving up the Internet networking’s value chain as the convergence of data, voice, video, and mobile communications turns the network into intelligent infrastructure.

The arrival of Wi-Fi convergence, however, won’t be happening as soon as Motorola and Cisco had hoped. Specifically, this was the year that mobile phone customers were supposed to be able to use handsets to roam seamlessly between cell-phone networks and the wireless fidelity, or Wi-Fi, hotspots that provide high-speed Internet access. But in April, the companies announced they had “suspended” the project due to lukewarm demand from the wireless carriers intended to distribute the handsets and related equipment. Although researchers had predicted that more Americans would use Wi-Fi than cellular networks by 2007, only about 30.2 million people in the U.S. used Wi-Fi last year compared to the 213 million that used cellular networks.

Part of the problem has been a lack of agreement on the new 802.11n interoperability standard. However, demand for Wi-Fi equipment should pick up once the new standard is released in late 2007.

Pharmaceuticals

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According to the Pharmaceutical Research and Manufacturers of America (PhRMA), R&D investments in new medicines by PhRMA’s biotechnology and pharmaceutical research member companies reached a record $39.4 billion last year, up from $37 billion in 2004. Yet, while the industry has maintained strong growth since its inception, some experts believe a downturn is in the making.

“The development of an ultra-competitive generic industry together with unprecedented patent loss will see branded companies struggle,” asserts London-based consultancy Visiongain. “The global pharmaceutical market is currently valued at $550 billion, but by 2009 an estimated $78 billion of revenue-producing drugs will have lost patent protection. Generic competition is expected to take at least 50 percent of the market and the consequent loss of income for the branded companies is significant. Drug development is taking longer, R&D investment is increasing exponentially and yet new chemical entities (NCE) approvals are static at approximately 50 per year.”

In addition, the pharmaceutical industry is facing other challenges, such as enforcement of intellectual property protections and rules governing the importation and re-importation of prescription drugs.

Specialty Retailers

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The specialty retail sector seems somewhat immune from the rising gas prices that customers of general merchandisers react to, simply because many shoppers of specialty or high-end merchandise can absorb the higher gas prices.

Home Depot—the leader in the sector—is the world’s largest home improvement retailer and the second-largest retailer in the U.S. The company is attracting more customers along with higher tickets with an ever-expanding array of products and services. Appliances are one product segment that Home Depot is aggressively pursuing. Sear’s is the market leader in this segment with 34.1 percent of the market, followed by Lowe’s with 15.8 percent and Home Depot with 9.7 percent.

The company is also looking at opportunities for greater supply chain efficiencies and intends to consolidate 3 existing Warehouse Management Systems into one system. In addition, Home Depot is looking to reduce store deliveries and lead times with an integrated Transportation Management System.

Recently, an upbeat Bob Nardelli, Home Depot’s chairman, president, and CEO, talked about the company’s first quarter performance, which resulted in a record operating margin and a “record average ticket of over $60.” On the topic of expansion, he said: “Currently, we have 141 stores in Canada and expect to open an additional 14 stores this year. In Mexico, we have 56 stores and expect to open an additional 4 stores this year. By the end of this year, Mexico will be a $1 billion business.” And although Home Depot isn’t yet in China, the company says they are “committed to being in the retail business there.” WT