Since December 2006, Gardner Business Media, publisher of Production Machining, has computed a business index for the general metalworking industry. Then, in December 2011, Gardner began surveying facilities across all of its durable goods manufacturing publications. After tracking the index’s performance across various technologies and markets, we are now ready to present the results each month for the precision machining industry.
The precision machining business index is a diffusion index that compares business conditions in the current month with the previous month. Each month, we survey the readers of PM regarding new orders, production, backlogs, employment, and so on. We weight the various sub-indices to create an overall index for the precision machining industry. A reading above 50 indicates expansion, while a reading below 50 indicates contraction. If you are familiar with the ISM index, then you will easily understand our index since it asks the same questions and works in the same way. The advantage to our survey is that the respondents are focused on precision machining instead of all types of manufacturing as in the ISM index.
With a reading of 49.8, Gardner’s precision machining index showed that business activity was essentially flat in March compared with February. Since December 2012, the precision machining industry has been fairly stable with the contraction that began in July last year, coming to a rather abrupt halt.
New orders grew for the second month with the rate of growth increasing in March. Also, production grew for the second month with an increasing rate of growth. New orders grew faster than production, though. Despite faster growth in new orders compared with production, backlogs continue to contract. This indicates that there is available capacity in the precision machining industry. Even though backlogs are still contracting, they are contracting at a slower rate. In addition to the drag from backlogs, exports continue to hold the total index down. Exports have contracted since the precision machining index was started. And, the rate of contraction in exports is accelerating slightly in those 16 months. Both employment and supplier deliveries are positively contributing to the overall index.
Employment has increased each of the last 3 months. And, supplier deliveries continue to lengthen, which indicate broad strength in the manufacturing supply chain.
Materials prices have grown slower the last 2 months. However, the rate of growth is up noticeably since July last year. At the same time, prices received by precision machining shops have grown very slowly or contracted. Combining these two trends with the growth in employment indicates that profits are under pressure. Future business expectations have improved significantly, reaching their highest level since April last year.
Shops with 50-99 employees have been the strongest segment of the precision machining industry. These shops have grown the last 3 months. Larger facilities have grown 2 of the last 3 months. However, shops with fewer than 50 facilities continue to contract. The rate of contraction in these smaller facilities has slowed considerably since December, though.
In February, growth was spread across a number of regions. But, in March the only regions that grew were the East South Central and Pacific. The other regions just barely contracted in March after all of them showed good growth in February.
Shops also are asked about their capital spending intentions for the upcoming 12 months. Future capital spending plans trended down from May to December last year. But, in the last 3 months, future capital spending plans have picked up steam. Spending plans have improved the most in shops with 20-99 employees. Shops outside of this size range have seen their spending plans for the next 12 months slow down or flatten.