Steve Kline, Jr. has been providing financial analysis and economic forecasts for Gardner Publications, Inc. (publisher of Modern Machine Shop) since 2005. While he has a degree in civil engineering from Vanderbilt University and a MBA with an emphasis on finance from the University of Cincinnati, Steve views forecasting as more of an art than a science. Therefore, his analysis focuses on trends between different data sets to determine where the economy (and, more importantly, the metalworking industry) may be headed. The study of economics is his life’s passion, hence the T-shirts of his favorite economists. Yes…any time he wears these, his wife points out that he truly is a geek.
With a reading of 48.7, the Gardner Business Index showed that the metalworking industry contracted in August at a significantly slower rate than in July and reached its second highest level since March 2015, which was the last time the index showed growth for the industry.
The new orders subindex jumped substantially for the month, growing for just the second time since March 2015. The production index also increased sharply, growing for just the third time since April 2015 but reaching its highest level since March of that year. While backlogs continued to contract, as they have since March 2014, this subindex has improved considerably since November 2015. Employment contracted for the 13th month in a row, but the rate of contraction was slower in August. Exports have contracted since March 2014. Supplier deliveries have lengthened since March of this year, but the rate of lengthening slowed noticeably in August.
Material prices have increased since March, and the rate of increase in each of the months since has been faster than at any time since late 2014. Prices received decreased at a minimal rate in August, having done so at a slower and slower rate since November 2015. Future business expectations improved in August for the second month in a row. Other than a spike in March, this subindex reached its highest level since August 2015.
Custom processors and plastic/rubber product manufacturers both posted an index above 63.0 in August. Presumably, if these facilities are cutting metal, it’s to make dies and molds. Off-road/construction machinery and industrial motors/hydraulics/mechanical components both grew in August, ending at least five months of contraction. Aerospace was also strong, growing for the fifth time in the previous six months.
While they are still below the historical average, future capital spending plans reached their highest level since November 2014. Compared with one year earlier, future spending plans increased for the fifth month in a row, and in three of those five months they increased more than 23 percent. This is a positive sign for capital spending in 2017.
With a reading of 45.3, the Gardner Business Index showed that the metalworking industry contracted in July at a slightly slower rate than in June. If we remove the significant spike in the index in February and March, then it has slowly and steadily improved since November 2015.
After a hard fall in new orders since March, their rate of contraction moderated in July. Discounting a spike in April, the production subindex in July was at virtually its highest level since May 2015. Like new orders and production, the backlog subindex also spiked sharply in March, but absent that, this subindex has contracted at a noticeably slower rate since November. Employment has contracted for 12 consecutive months, and exports have contracted since March 2014 with generally accelerating contraction since this past March. Supplier deliveries lengthened for the fifth month in a row.
Material prices had shot up dramatically in the first half of 2016, but in July they increased at a slower rate. They increased at a faster rate from May to July, however, than at any time since the first half of 2014. Prices received have decreased since June 2015 with the rate of decrease accelerating since this past April. Future business expectations improved slightly in July but remained near their lowest level of the last three years.
Every geographic region contracted for the third month in a row. The Southeast was the strongest region for the third time in five months, and it was closely followed by the North Central-East, South Central and North Central-West. The South Central had its second highest index since May 2015, while the Northeast and West lagged the other regions.
While they are still well below the historical average, future capital spending plans have increased compared with one year earlier for the fourth month in a row, therefore, the annual rate of change has contracted at a decelerating rate since February. The rate of contraction was the slowest since March 2015, which is a positive sign for capital equipment consumption.
With a reading of 44.4, the Gardner Business Index showed that the metalworking industry contracted in June at its fastest rate since December 2015. The index showed a bit of a surge in the first quarter of 2016, but slowed down throughout the second quarter.
The new orders subindex has fallen off sharply since March, the one month of growth it had experienced in a year. In June, it fell to its lowest level since last October. The production subindex, which was virtually unchanged from May, is at its lowest level for the year, although it is still somewhat above its low from last year. Like new orders and production, the backlog subindex experienced a sharp spike in the first quarter of 2015, but it has since declined rather sharply, having generally contracted since April 2014. Employment also has contracted since August 2015, and, while the value of the dollar has moderated, exports also remain mired in contraction. Supplier deliveries lengthened in June at their fastest rate since June 2015.
The material prices subindex continued to increase at an accelerating rate, reaching its highest level since November 2014. Most of this surge was more likely due to the leveling off of the dollar than to a strengthening world economy. Prices received have decreased since June 2015, but the rate of decrease generally has decelerated since November. Future business expectations have declined since March, and in June were roughly at the level of the fourth quarter of 2015.
For the second month in a row, every geographic region contracted. While the Southeast had been the strongest region for a number of months, in June it ranked as the second weakest region. Although it continued to contract for the third straight month, the Northeast contracted at the slowest rate of all regions. It was followed by the North Central-West, West, North Central-East, Southeast and South Central.
While they are still well below the historical average, future capital spending plans have increased compared with one year ago for the third month in a row, therefore, the annual rate of change has contracted at a decelerating rate since February. In fact, this rate of contraction has been cut in half, which is a positive sign for capital equipment consumption.
With a reading of 45.3, the Gardner Business Index showed that the metalworking industry contracted in May at a similar rate as in April. Although the index showed a bit of a surge in the first quarter of this year, it has slowed down in the second quarter so far. The trend since last November is still somewhat positive, however.
New orders and production both contracted in May for the second month in a row, and while production took the larger hit the previous month, new orders contracted faster than production in May. The backlog index also contracted faster for the second month in a row. Overall, backlogs have contracted since March 2014. Employment contracted for the 10th month in a row with the rate of contraction accelerating somewhat the last two months. The export subindex has contracted at a decelerating rate since August 2015 as the rate of increase in the dollar has slowed, if not stopped altogether. Supplier deliveries lengthened in May for the third month in a row.
The material prices index has increased sharply in 2016, jumping to 59.4 in May from 41.9 in January. Some of this surge is more likely due to the leveling off of the dollar than to a strengthening world economy. This subindex was at its highest level in May since November 2014. Prices received have decreased since June 2015, but the rate of decrease generally has decelerated since November 2015. Future business expectations were unchanged from April, remaining above their level of the second half of 2015.
Every region contracted in May, although the Southeast remained the strongest with a very moderate contraction, having grown three of the last five months. It was followed by the Northeast, which has contracted the last two months, the North Central-West, the West, the North Central-East, and the South Central region. The South Central has had an index above 40 two of the last three months, which is a significant improvement over its level since November 2015.
While they are still well below the historical average, May’s future capital spending plans were at the second highest level since February 2015 (only April was higher). This also was the second month in a row that spending plans were higher than they were a year earlier. This has caused the annual rate of change to contract at a slower rate for three months. These last couple of months could be the beginning of a rebound in capital equipment spending.
With a reading of 45.9, the Gardner Business Index showed that the metalworking industry contracted in April at a faster rate than the previous two months, ending a string of four months in which the index showed notable improvement.
New orders and production both fell back into contraction after one month of growth, with production taking the larger hit as it contracted at its fastest rate so far this year. The backlog index contracted at a faster rate than in March after improving sharply since November, and employment contracted at its fastest rate since August. The export index had been contracting at a slower rate since August, but that trend appeared to end in April. Supplier deliveries lengthened at a faster rate for the second month in a row.
Material prices increased at an accelerating rate for the second month in a row, although this rate of increase was still the slowest in nearly six years. Prices received have decreased since June, but their rate of decrease was the slowest since September. Future business expectations dropped, but were still among the highest since August.
The Southeast region continued to be quite strong, having grown three of the first four months of this year, and it was the strongest region in each of those months. March and April were the two best months for this region since the survey began in December 2011. Every other region contracted in April, however. The Northeast contracted after two months of growth, the North Central-West and North Central-East have contracted most of the last year, and the West has contracted eight of the last nine months. The South Central recorded its lowest index, as the oil and gas industry continued to struggle.
While they are still well below the historical average, future capital spending plans were higher than $700,000 per plant for the first time since February 2015. These spending plans increased 29.4 percent in April, the first increase over one year earlier since September 2014. This could be the beginning of increased in capital spending in the metalworking industry.