January Index Flat since September

With a reading of 49.7, the Gardner Business Index showed that the production machining industry contracted slightly in January after expanding in December. Since September, the industry has been almost flat, bouncing back and forth between expansion and contraction. Compared with 1 year ago, the index contracted by 12.2 percent, which was the fastest rate of month-over-month contraction since April 2013. The annual rate of change continued to grow at a strong rate, but it decelerated for the fourth month in a row.

New orders contracted for the third time in 4 months. The new orders index has generally trended down since January last year. However, the production shot up to its fastest rate of expansion since August. Production has expanded every month since January 2014. Backlogs continued to contract. The rate of contraction has been slower the previous 2 months than the previous 3 months. Annually, the rate of change in backlogs has been decelerating for 4 months, but the rate of growth is still quite strong. Therefore, the trend in backlogs indicates increases in capacity utilization, perhaps through the second quarter this year. Increasing capacity utilization should result in increased capital spending. Employment contracted for the first time since December 2013. Exports remained mired in contraction, thanks to the strength of the dollar. Supplier deliveries lengthened at a rate similar to that of last year.

The rate of increase in material prices has fallen considerably since last June. In fact, material prices were increasing at their slowest rate since November 2012. Prices received increased somewhat in January after decreasing very slightly in the previous 3 months. Future business expectations declined a little in January, but remain close to the average level of the last 15 months.

Shops with 50-99 employees expanded at a faster rate in January than they did in December. Facilities with 20-49 employees contracted for the third time in 5 months, although the rate of contraction was quite mild. However, shops with fewer than 20 employees saw a significant contraction in business conditions in January. 

After contracting the previous 3 months, the North Central – West became the fastest growing region in January. Not too far behind was the North Central – East. The other two regions with enough participation to calculate an index, the Northeast and West, both contracted in January.  

Future capital spending plans for the next 12 months took a huge hit in January, dropping 50.2 percent compared with 1 year ago. This was just the second month-over-month contraction since August. Because of the significant drop this month, the annual rate of change contracted for the first time since August.