Precision Machining Index Experiences Third Month of Contracting Activity

The Precision Machining Index registered 45.9 in September, which marks for a third month of quickening contraction of business activity as reported by surveyed precision machinists. Readings above 50 indicate expanding activity, and values below 50 indicate contracting activity. The further away a reading is from 50 the larger the size of the change in activity. Gardner Intelligence’s analysis of the underlying index components revealed that weakness in exports and backlogs were the significant drivers pulling the Index lower. Production, new orders and employment had little influence in the Index’s September movement while supplier deliveries registered the highest reading for the month among all components, helping to offset some of the Index’s fall. Even so, supplier deliveries registered a contractionary reading for the first time since the third quarter of 2016.

Contracting activity in both domestic and foreign new orders in September further weighted on backlogs, which have experienced strong contracting activity in each month since June 2019. Additionally, employment activity that has historically been slow to respond to economic changes and typically less volatile than other Index components, experienced its largest ever single month move during the third quarter of 2019. The recent and sharp contraction in employment activity this early in what is expected to be a slower economy in 2020 was unanticipated. Manufacturers often hold onto talent while evaluating the anticipated duration and magnitude of an economic slowdown first before releasing hard-to-replace talent.