PMI Decelerates During Final Weeks of 2018

Registering 50.9 for December, the Gardner Business Index (GBI): Precision Machining Index moved lower as several of the Index’s components ended the final month of 2018 in contractionary territory. Compared with the same month one year ago, the Index decreased by 10.6 percent. Gardner Intelligence’s review of the underlying components of the Index revealed that supplier deliveries led the index higher followed by employment, which saw its reading increase from the prior month. By contrast, new orders, production, exports and backlog brought the Index—a calculated average of the components—lower. The last time that new orders and production both contracted in the same month was August 2016.

Supplier deliveries closed the month with a reading slightly above 60. For the first time in recorded history, supplier deliveries posted readings above 60 during every month in a calendar year. In total, supplier deliveries have expanded every month since September 2016. Gardner believes the unusually strong performance of supplier deliveries during the second half of 2018 can be largely attributed to the historic rise in new orders in 2017 and early 2018. Supply chains may still be adjusting to handle the large inflow of orders from earlier in the year. If this is the situation, coordination between suppliers and manufacturers in 2019 will be critically important so that inventories can be smoothly balanced as the industry transitions to a more sustainable growth rate.

December’s production reading marks the first time in more than two years that production has contracted on a month-to-month basis. This contraction may be in response to recent months of eroding exports and slowing new orders growth. Current moves lower in all three measures suggest that the backlogs measure—which recorded the lowest reading among all components in December—was also at risk of moving lower.