May Marks Third Month of Contraction

With a reading of 47.9, Gardner’s precision machining index showed that business activity contracted faster in May. While the industry has contracted the last 3 months, the contraction has been relatively mild compared with what the industry saw in the second half of 2012.

 There continues to be a significant gap in performance between shops with more than 50 employees and shops with fewer than 50 employees. In fact, the gap grew even wider in May. The largest shops, those with more than 250 employees, recorded their highest growth rate since March 2012. On the other hand, the smallest shops, those with fewer than 19 employees, recorded their fastest rate of contraction since December 2012.

 New orders contracted for the second month in a row. Basically, new orders are only contracting at the smallest facilities. Production has expanded at a consistent rate for the fourth straight month. Employment grew for the fifth month in a row. Supplier deliveries continued to lengthen, but at their slowest rate since October 2012. The overall industry index is being hurt the most by backlogs, which contracted at their fastest rate in May since December 2012. Backlogs have been contracting since April 2012. The likely reason for this is the significant amount of capital-purchased precision machining facilities since 2010. Exports are weighing heavily on the overall index as well. The relatively strong dollar is making American exports more expensive.

 Material prices continue to increase, but the rate of increase was the slowest since November 2012. Prices received grew for the fourth time in 5 months. Future business expectations were relatively unchanged in May. They are noticeably higher than the second half of 2012, but still well below the levels of the first quarter of 2012.

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