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Business Index Growth Moves Higher in May

Precision Machining Index reports the third highest reading in history.

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Registering 59.7 for May, the Gardner Business Index (GBI): Precision Machining rebounded to near record territory after a drop in April. Compared with the same month one year ago, the index is 7.1 percent higher. Gardner Intelligence’s review of the underlying data indicates that supplier deliveries, employment and production lifted the business index higher. The components, which lowered the index’s average-based calculation, included new orders, backlog and exports.  In a surprise move, exports expanded strongly during the month, posting the highest reading since 2011.

This month’s data again supports Gardner Intelligence’s manufacturing business cycle theory, which posits that new orders and production precede changes in supplier deliveries and employment. As new orders abruptly increased during the first quarter of 2018, manufacturers made immediate but limited changes to their production levels. However, for shops to sustain increased production levels, or achieve more than modest production increases, manufacturers must ultimately alter supply delivery schedules or volumes and potentially increase employment levels. These changes to supplier deliveries and employment typically happen months after the initial change in new orders, making them lagging indicators. The recent peaks in supplier deliveries and employment would thus be expected based on this theory.

Backlog readings through the year-to-date period continue to be strongly elevated with an average reading of more than 60.  This indicates that the industry is still receiving higher levels of work than they can process with their current capacity. Looking at the history of the backlog data, apart from May 2017, the backlog index has expanded for 18 months, marking by far the longest period of backlog expansion in recorded history.

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