June is Third Month of Contraction

With a reading of 46.0, the Gardner Business Index showed that the production machining industry contracted for the third straight month and reach its lowest level since September 2013. Other than a brief spurt of accelerating growth from January to March earlier this year, the index has trended down fairly consistently since last June.

New orders have been on a similar trend. The index fell from January to November 2014 then shot up until March this year. Since then, the new orders index has dropped considerably. In fact, it has contracted the last 3 months and was at its lowest level in June since September 2013. Production had grown or been flat every month since December 2013 until it contracted in June. The production index has dropped significantly the previous 3 months. Backlogs have contracted since September last year. The rate of contraction generally has accelerated since March this year. This is an indication that capacity utilization in the industry will fall. Employment continued to increase though, as it has in every month but one since December 2013. The export index fell to its lowest level since December 2012 because of the strong dollar. Supplier deliveries lengthened at a rate similar to most of the previous 18 months.

Material price increases remained muted in June. While the rate of increase has accelerated slightly the previous 2 months, the material prices index was still very near its lowest level since November 2012. Prices received have contracted 2 of the previous 3 months. Future business expectations have fallen significantly since March this year. In June, the index was its lowest level since December 2012. Expectations are currently about 9 percent below average.

All plant sizes contracted in June. Facilities with more than 250 employees and with 50-99 employees saw there indices fall about 44.5 from almost 60 the previous month. Shops with 20-49 employees have contracted the last two months, but their index was the highest in June. Companies with 100-249 employees contracted for the second month in a row. Shops with 1-19 employees have contracted every month but one since May 2014.

The North Central-East was the only region to grow in June. It has expanded in 6 of the last 7 months. The Southeast was flat after growing at the fastest rate the previous month. The Northeast contracted moderately after growing the previous month. The West and North Central-West had indices close to 43 while the South Central saw its index collapse to 22.8.

Future capital spending plans fell 46 percent compared with 1 year ago. In 3 of the last 6 months, future spending plans have contracted at least 46 percent. They only increased in May.