Gardner Business Index, Precision Machining: February 2016 – 45.0

With a reading of 45.0, the Gardner Business Index showed that the precision machining industry contracted for the 11th month in a row. However, the index has increased significantly over the previous three months, indicating that the industry bottomed out in November 2015. In February, the index was at its highest level since July 2015.

New orders have contracted 11 consecutive months, but the index has improved substantially since November. Production contracted for the ninth straight month. However, production contracted at a slightly faster rate than this January. In recent months, the new orders index has been improving faster than the production index. Therefore, while the backlog index has contracted for 23 months, the index has improved sharply since December. Employment contracted for the seventh consecutive month, but the index has improved fairly consistently since October. Because of the strong dollar, the export index has contracted since March 2014. However, the rate of contraction has slowed the previous two months. Supplier deliveries shortened for the fifth time in six months. This indicated that the supply chain continued to have plenty of room for improving business conditions.

The material prices index contracted for the eighth month in a row. While the index has been in a virtual free fall since June 2015, material prices have decreased at a slower rate during the previous two months. Prices received at machine shops were unchanged in February, which was the first time they had not decreased since September 2015. Future business expectations improved slightly, but remain near their lowest level of the last two years.

Facilities with more than 250 employees have contracted three of the previous four months. Plants with 100 to 249 employees contracted significantly after two strong months of expansion. Mid-size facilities, those with 20 to 99 employees, contracted at a much slower rate in February. Companies with fewer than 20 employees continued to contract, but in February, they contracted at their slowest rate since September 2015. 

For the second month in a row, the Southeast region was the only region to expand. In February, its index was at its highest level since May 2015. The Northeast contracted at the slowest rate in February as conditions have improved each of the previous four months. It was followed by the West, North Central-East, North Central-West, and South Central regions. 

Future capital spending plans were at their second highest level since August 2015. And, the month-over-month rate of contraction has decelerated substantially the previous two months. As a result, the annual rate of contraction bottomed out in December. It appears that the trend in spending has started to improve.