January 23, Aerospace industry. high side in the. of Sales. Index. show less than 2% per gently. lowest. on record. (Wards)

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1 January 23, 2013 BUSINESS TRENDS 2012 REVIEW AND SUMMARY For Calendar Year 2012: PMPA s Index of Sales of Precision Machined Products finished at 114 for the year, just even with 2011, despite the very strong first half. Business fundamentals were no match for politico-economic brinkmanship leading upp to the election,, and shipments tanked. December sales were 88, only eighty-nine percent of same month last year. The good news is that for the calendar year, sales of the precision machining industry are even with those of last year. The standard deviation of sales for 2012 was 11.44, approaching the 13.8 shock and awe volatility of (2010 and 2011 standard deviations were 7.82 and 8.33 respectively.) As I look at this data, I am heartened by the fact that the deviations were to the high side in the first quarter of the year. The industry should be pleased that sales for the year held their own with those of the prior year Index of Sales December December Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 The average for shipments is 102, down seven points from in 2011 and down almost 15 points from the 2012 average. What happens inn Washington D.C. does not stay in Washington D.C. according to our sales index. Shipments The average shipments index for 2012 was 114. The average shipments index for our base year of 2000 was 100. According to our data, we show less than 2% per year growth- (1.166% per year over the entire period) since Much of that growth has been in the past two years. We are gently optimistic for industry sales in here s why. Automotive Light Vehicle Sales in 2012 were up 13.4% to 14.4 million units. Seasonally Adjusted Annual Rate (SAAR) was over 15 million for the last two months. Average age of fleet is said to be 11 years. As housing market improves (see below) light vehicle sales are expected to further strengthen as light vehicle sales correlates well with housing. (Tradesmen buy light trucks and vans when they are working). Morgan Stanley Managing Director Adam Jonas forecast light vehicle sales to rise to 17 million byy One caveat: GM s market share fell to 18% in the U.S, lowest on record. (Wards) Aerospace industry sales for civilian, military and space applications are expected to top $2244 billion in 2013, up from $218 billion in 2012, largely on growing civil aircraft sales. That is a 3.4% gain. The sequestration couldd have outsized impact on this market, which is already seeing weakness in domestic military orders (down 2.4% at $58.4 billion in 2012, and expected to decline a further 10% in 2013 according to the AIA) ). Continued weakness in Europe could also slow exports in this sector. (AIA) (Over)

2 Housing The residential construction sector continues to be a bright spot, with housing starts soaring to 954,000 at the annual rate in December. This represents a 36.9 percent increase year-over-year and is a clear indication that housing is recovering. Freddie Mac reported that the average 30- year mortgage rate fell to 3.38 percent a major contributor to the recent progress in n the residential market and home builder confidence continued to grow throughout the year. I expect for housing starts to exceed 1 million units byy year s end a a major accomplishment, even as it remains well below the 2.1 million homes built in 2005 and Despite this upward movement, challenges remain, especially regarding tougher lending standards and persistent financial challenges for would-be buyers (NAM-Chad Moutray) Medical devices form one of the largest industriess in the Healthcare sector. Precision machiningg industry sales to medical devices segment was 6.4% of suppliers sales dollars according to PMPA s 2012 Business Forecast report. The medical equipment makers and medical supply chain finished the year up and the indexes we use as their indicator are both near their 52 week highs. The Dow Jones U.S. Medical Devices Index Fund (IHI) is trading at $ as I write this report, the 52 week low was $ that s a 20% gain. The Dow Jones U..S. Medical Supplies Total Stock Market Index is at its 52 week high of $$486.18; its 52 week low was $ on January 18, 2012, showing a 52 week gain of 22%. We are guardedly optimistic about our industry sales for 2013 if Washington can stopp paralyzing the markets we serve. Average Hours of First Shifts Indicator The average length of first shift in 2011 was 43.7 hours; in 2012 it was down 0.9 hour to In both 2011 and 2012 only 2% of all companies reported first shifts of less than 40 hours, though December 2012 s average hours of first shift was half an hour shorter than 2011 s at 41.1 hours. In December 2012, only 40% of shops reported first shift hours in excess of 40. (It was 53% in 2011) Net Sales Outlook for machined products spiked strongly in December, with 44 % of respondents expecting sales to increase over the next three months, more than twice the number (20%) expecting them to decline. With 36% expecting sales to remain about the same, clearly 80% of respondents expect to see 2013 as good as or better than Lead Times and Employment Lead times are expected to remain about the samee (73%) with those expecting an increase (14%) just exceeding those expecting a decline (13%). Prospects for employment have dropped substantially compared to December 2011 when 99% of respondents felt employment opportunities would remain the same or improve. In December 2012, just 86% of respondents felt the same way about employment prospects. Profitability December 2012 profitability sentimentt for the next three months was 81 positive (same or up) -down from December 2011 s 89. Sixty-nine percent (69 %) of respondents expect profitability to remain the same, withh 22% expecting an increase versus 19% expecting a decline. Conclusion Calendar year 2009 taught us that it is Demand, and not ability to supply, that creates a market for precision machined products. Calendar year 2012 was off to a great start (high standard deviation to the upside for sales!) until election year shenanigans and the (sorry for the air quotes folks) fiscal cliff separated our customers and markets from their confidence,, destroying orders and shipments for November and December. Even Demand can t overcome the special cause of political risk. The strong start to 2012 was for naught, with the low sales data from November and December 2012 resulting in our finishing the year barely even with So much for continuous improvement. Our data suggest that the precision machining industry is well positioned to take advantage of growth in demand that can be reasonably foreseen in Automotive, Housing, Aerospace and Medical Devices, if- and this is a strong if- if the pol s in D.C. can get the heck out of the way and let our small business job-creator entrepreneurs- and our customers- have confidence in the year ahead. If not, the opportunity for growth that is 2013 will go to waste just like it did in Let s hope that we don t repeat THAT history lesson! Miles Free Director, Industry Research and Technology Precision Machined Products Association About the data: 87 respondents, 19 up, 13 of those up double digits; 68 down, 49 of those showing double digit declines.

3 PRECISION MACHINED PRODUCTS ASSOCIATION BUSINESS TRENDS Results from: December, INDEX OF SALES OF PRECISION MACHINED PRODUCTS 2000 = 100 INDUSTRIES AVERAGES JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVG Base % YR AGO Y-T-D AVERAGE LENGTH OF FIRST SHIFT PER WEEK YEAR-TO-DATE AVERAGES Average length first shift (hours) Nov Dec % Companies Reporting: Less Than 40 Hours 2% 2% 5% 8% 40 Hours 41% 45% 51% 52% Hours 19% 23% 25% 22% 45 Hours 13% 11% 11% 13% Hours 10% 8% 4% 3% 50 and Over 15% 10% 3% 2% Note: Periodically, we update prior period data which was not previously available at the time of input. When these changes are made, you will probably see some discrepancy between prior month figures shown on the current report and the prior month report as originally issued. THIS REPORT DOES REFLECT CHANGES -2-

4 PRECISION MACHINED PRODUCTS ASSOCIATION BUSINESS TRENDS Results from: December, 2012 The figures reported below reflect the view of respondents based on conditions as of the end of: December, A. NET SALES OF MACHINED PRODUCTS - Compared with today, the trend of Net Sales volume for the next 3 months is expected to be: Up Same Down B. LEAD TIMES - Compared with today, the trend of Lead Times for the next 3 months is expected to be: Up Same Down C. EMPLOYMENT - Compared with today, the trend of Employment for the next 3 months is expected to be: Up Same Down D. PROFITABILITY - Compared with today, the trend of Profitability for the next 3 months is expected to be: Up Same Down EXPLANATION OF GRAPHS: The line in each chart represents a graph for that chart's data to allow for easy comparison and tracking of trends. The full range from top to bottom on that line represents 0% (bottom) to 100% (top) of the respondents. In other words, the higher the line, the greater the ratio of respondents who answered the top option as opposed to the bottom option. -3-

5 BUSINESS TRENDS Index of Sales and Average Weekly Hours Charts 140 Index of Sales December December Average Weekly Hours December December Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12

6 130 SALES Precision Machined Products Industry Calculated at 3 & 12 Month Moving Averages 110 INDEX (2000 = 100) Machined Products - 3 Month Moving Average Machined Products - 12 Month Moving Average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec