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 44.1, Gardner’s Metalworking Business Index showed that the industry contracted in September for the sixth month in a row, although it did improve compared with August. New orders also contracted for the sixth month in a row, but the rate of contraction was noticeably slower than the month before. Production contracted at an accelerating rate for the third month in a row, but the production index remains above the new orders index. The backlog index, therefore, contracted once again. Since March 2014, this backlog index has followed a fairly steady downward trend, indicating falling capacity utilization at metalworking facilities. While employment contracted for the second consecutive month, the rate of contraction was noticeably slower in September than it was in August. The dollar continues to increase in value relative to almost every other currency, therefore the export index contracted for the 18th month in a row. Supplier deliveries shortened for the first time since June 2013, and shorter delivery times indicate that suppliers aren’t as busy and can more easily meet the demands of customers.
Virtually all commodities have fallen in price throughout 2015. As a result, the material prices index showed that material prices decreased in September for the first time since June 2009. This index has fallen consistently since June 2014, while prices received have remained relatively stable this year. The combination of falling material prices and stable prices received should boost profitability at metalworking facilities some. The future business expectations index continued to fall in September and was at its lowest level since November 2012.
Future capital spending plans were basically unchanged from August, however, compared with one year earlier, they fell 26 percent. That’s the sixth month in a row that metalworking facilities have cut capital spending plans by more than 20 percent.
With a reading of 43.3, Gardner’s Metalworking Business Index showed that the industry contracted in August for the fifth month in a row to its lowest level since July 2009, when the index was 36.5. The rate of contraction accelerated significantly in July and August. Compared with one year earlier, the index has contracted for eight consecutive months, and August’s rate of contraction was the fastest of those eight months.
New orders also contracted for the fifth month in a row, and, like the total index, their rate of contraction accelerated in July and August, taking this subindex to its lowest level since July 2009. Production contracted for the second month in a row and the third time in four months, although the rate of contraction was significantly slower than that of new orders. The backlog index, therefore, continued to contract at an accelerating rate, falling in August to its lowest level in two years. The decline in this subindex has been fairly steady since March 2014, indicating that capacity utilization will fall heading into 2016. Employment fell for the first time since August 2013, and its drop from July was quite significant. Because of the rapid appreciation of the dollar over the last year, exports also contracted at their fastest rate since July 2009. Meanwhile, supplier deliveries continued to lengthen at a moderate rate similar to the previous three months.
Material prices increased at a notably slower rate in August, and, in fact, their index fell to its lowest level since November 2009 when it was 50.0. Prices received by metalworking facilities contracted for the fourth time in five months, however, this index has been just below 50.0 in each of these months. Future business expectations weakened slightly compare with the previous three months and have been below average for five straight months. They are at their lowest level since September 2013.
The one bright spot is that future capital spending plans reached their highest level since this past March, although they were still about 33 percent below their average since December 2006.
With a reading of 47.8, Gardner’s Metalworking Business Index showed that the industry contracted in May for the second straight month, at virtually the same rate as in April, after 15 consecutive months of growth. The industry last contracted at this rate in April and May of 2013, but at that time, the industry had mostly been contracting for the previous year. At least this year’s contraction came from a much better starting point.
After surging in March, new orders contracted the following two months, and production contracted for the first time since September 2013. Since the beginning of 2014, production has grown at a faster rate than new orders, therefore the backlog index has steadily fallen over that same time period. While the backlog index improved somewhat from April, it remained on the down trend it began in early 2014. Compared with one year earlier, backlogs have contracted more than 10 percent for five months in a row. Current trends in backlogs indicate that growth in capacity utilization will continue to decelerate. Employment increased very slightly in April to the lowest point since it last contracted in September 2013. Exports have not expanded since August 2011, and they have contracted at a consistent rate in 2015. Supplier deliveries continued to lengthen but at a much slower rate than at any time since January 2014.
Material prices increased over April, but the rate of increase was still less than that for the last six years. Prices received increased after decreasing in April, but future business expectations have fallen rather significantly in both months to their lowest level since September 2013. The current level is about 5 percent below the historical average.
Future capital spending plans continued to be hit hard in May, contracting at the fastest rate since June 2012. The annual rate has contracted at an accelerating pace for six months in a row.
With a reading of 47.9, the Gardner Business Index showed that the metalworking industry contracted in April 2015 for the first time since December 2013, ending a string of 15 straight months of growth. Also, April brought an end to the small but steady uptrend the industry had been on since September 2014. Compared with April 2014, the index was down 10.8 percent. This was the largest month-over-month decline in the index since April 2013. It was also the fourth straight month the index declined month over month.
After surging in March 2015, new orders contracted for the first time in 18 months. Production expanded for the 19th month in a row, but the increase was the smallest since December 2013. The backlog index has been trending down since March 2014 and in April reached its lowest level since August 2013. Compared with one year ago, the backlog index has contracted at a double digit rate four straight months. The annual rate of growth continues to decelerate, indicating that capacity utilization has seen its peak rate of growth in this cycle. Employment continues to grow, but the rate of growth in 2015 has been generally slower than it was in 2014. Exports have contracted at a constant rate in 2015 due to the relatively strong dollar. Supplier deliveries lengthened at their slowest rate since August 2013, indicating that general manufacturing activity decreased in April.
The material prices index continued to fall. In April, it was at its lowest level since December 2009. Prices received contracted for the first time since April 2014. This April was the first month to record a significant decline in prices received since October 2010. The future business expectations index fell to its second lowest level since September 2013. However, they were at their historical average.
The index fell at facility sizes. Plants with more than 50 employees continued to grow, but the growth was noticeably slower. Generally, the larger the facility, the more the growth slowed. After two months of growth, plants with 20-49 employees contracted significantly. Shops with fewer than 20 employees contracted even faster in April. Both of these smaller plant sizes had their lowest index since August 2013.
Only two of the six regions expanded in April. Both the North Central – West and West regions had an index of 51.0. The North Central – East, Northeast, and Southeast regions switched to contraction from growth. The Northeast has contracted three of the last four months. And, the Southeast recorded an almost 10 point drop in its index in April. The South Central contracted at a similar rate as last month.
Future capital spending plans were hit hard in April. Compared with one year ago, they contracted 37.4 percent in April. That was the seventh straight month they have contracted month over month. The annual rate of change has contracted at an accelerating rate for five months.
With a reading of 52.6, the Gardner Business Index showed that the metalworking industry grew for the 15th consecutive month and the 17th time in 18 months. With the increase in the index in March, the metalworking industry has returned to the uptrend that started in September 2014. While the index has been climbing in recent months, compared with one year ago the index has contracted for three straight months. So, the metalworking industry is growing but not as fast as it was at the beginning of 2014.
New orders and production increased for the 18th month in a row. The index for both was substantially higher this month compared with last month and near its highest point in almost a year. Yet, backlogs contracted for the 12th straight month. The backlog index does seem to have stabilized in recent months though. Compared with one year ago, the backlog index has contracted for three consecutive months. And, the annual rate of change peaked almost eight months ago, which means growth in capacity utilization has probably seen its peak for a while. The rate of hiring picked up significantly in March as the index reached its highest level since November. Exports contracted at a similar rate compared with last month due to the relatively strong dollar. Supplier deliveries continued to lengthen, but they did so at nearly the slowest rate in a year.
While material prices continued to increase, the rate of increase continued to decline. In March, material prices increased at their slowest rate since October 2010. Prices received were flat in March, which was the first time they did not increase since April 2014. Future business expectations improved slightly month. The index is about 5 percent above its historical average.
Plants with 20-49, 100-249, and 250 or more employees recorded a significant improvement in business conditions in March. The largest facilities are still growing significantly faster than the rest of the industry though. Shops with 50-99 employees have seen consistently strong growth since the end of 2013. Shops with 19 or employees remained mired in contraction. They have recorded only two months of growth since March 2012.
Five of the six regions expanded in March. The West, North Central – East, North Central – west, and Northeast regions saw very similar growth rates this month. For the second month in a row expansion was minimal in the Southeast. The South Central has contracted for four months in a row. In the last three months, the index for the South Central has been below 40.
Future capital spending plans contracted 19.4 percent compared with March 2014. This was the sixth straight month of contraction compared with one year ago. The annual rate of change contracted for the fourth month in a row.
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