Business Index Continues to Contract

With a reading of 43.8, the Gardner Business Index showed the production machining industry contracted in September for the 6th month in a row and at its fastest rate in more than 2 years. Other than a sharp upward spike in the first quarter this year, the index has generally trended down since January last year. 

New orders have followed a similar pattern to the total index. The new orders index has generally fallen since January except for a sharp spike in the first quarter of this year. New orders have contracted at an accelerating rate for 6 straight months. In September, new orders contracted at their fastest rate since December 2012. Production contracted for the 4th straight month. It, too, was at its lowest level since December 2012.

Generally, the new orders index has been lower than the production index for the previous 18 months. Therefore, the backlog index contracted for the 13th month in a row. The rate of decrease improved slightly from August, but the index remained within its downward trend. Employment contracted for the second consecutive month. These 2 months are the lowest for the employment index since the survey began in December 2011. Because the dollar has been increasing in value relative to almost every other currency, the export index has contracted since March last year. Supplier deliveries shortened for the first time since July 2013. This indicated slack within the supply chain since suppliers were more able to meet customers’ needs.

The material prices index contracted for the 3rd month in a row. The index has steadily fallen since its all-time peak in June last year. The trend in the material prices index mirrors what is happening to commodity prices because of the weak global economy. However, prices received at machine shops increased for the second time in 3 months. In fact, the index has generally been improving since April 2015. 

Companies with more than 250 employees have had an index below 44.0 for 4 straight months. Facilities with 100-249 employees have contracted 3 of the previous 5 months. And, plants with 50-99 employees have contracted 3 of the previous 4 months. These three plant sizes were generally expanding prior to June. While shops with fewer than 50 employees have been contracting for quite some time, their rate of contraction has been relatively stable.

Two of the regions expanded in September after all of them contracted in August. In September, the West region was the fastest growing. The Southeast expanded for the fourth time in 5 months. The North Central-East contracted for the fourth time in 5 months. It was followed by the Northeast, which contracted for the third time in 4 months. The index for the North Central-West dropped below 40.0 for the first time since December 2012. The index for the South Central has been below 40.0 for 8 of the previous 10 months.

Future capital spending plans were virtually unchanged from August. They remain almost 33 percent below their historical average. Compared with 1 year ago, spending plans have fallen more than 40 percent in 4 of the previous 6 months.