Business Index Quickly Decelerates
Index moves significantly lower over past two months.
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Precision Machining Index: July’s Precision Machining Index reading of 51.6 was significantly lower than other recent readings. The latest index reading was supported only by supplier deliveries, this is a change from recent quarters during which the index was dominantly driven by production and new orders.
July new orders and Backlogs Fall into Contractionary Territory: For the first time since the third quarter of 2016, readings for both new orders and backlogs simultaneously contracted in July. However, the continuous expansion in backlogs during 2017 and much of the first half of 2018 suggests that manufacturers should be able to smooth current new orders volatility with unfulfilled orders.
Registering 51.6 for July, the Gardner Business Index (GBI): Precision Machining moved several points lower during the month, indicating little additional industry expansion, but expansion nonetheless. Compared with the same month one year ago, the index declined by 3 percent. The last time the index experienced a year-over-year decline was in mid-2016. Gardner Intelligence’s review of the underlying data indicates that only supplier deliveries lifted the averages-based business index higher. The index’s average-based calculation was decreased by production, employment, exports, backlog and new orders. However, a single month’s results don’t make a trend.
The latest data indicated significantly slower growth in production and employment as compared with a month ago. For the first time since mid-2016, both backlogs and new orders reported contraction during the same month. For the first time since at least 2011, new orders were the fastest contracting component of the index. In addition to new orders, Gardner’s survey data reported that backlogs and exports also contracted during the month.
No month’s readings are indicative of future months’ readings, and it is possible that August’s readings could be significantly better. The unemployment rate among manufacturing laborers is presently extremely low, according to the Bureau for Labor Statistics. Thus, the latest Gardner employment reading may be the result of limited labor supply as opposed to weakness in the demand for laborers. Prior to the latest reading, backlogs expanded in each of the last 14 months, suggesting that manufacturers likely have large pools of pre-existing orders, which they can use to smooth any volatility in new orders.
