Mild Metalworking Index Contraction Extended

The Index posts mild contraction despite growing new orders.


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The Gardner Business Index (GBI): Metalworking registered another month of mild contraction during October with a reading of 48.3. Index readings above 50 indicate expanding activity while values below 50 indicate contracting activity. The further away a reading is from 50 the greater the change. So, an index reading that moves higher but is below 50 indicates that the rate of contracting business activity is slowing. Gardner Intelligence’s review of the underlying index components observed that the Index — calculated as an average of its components — was supported by expanding activity in supplier deliveries, production and employment. Although new orders contracted slightly in October, the Index was weighed down only by exports and backlogs.

New Orders & Exports (3MMA)

New Orders & Exports (3MMA)
Total new orders readings have come off recent lows despite a quickening contraction in export orders. The implication of these disparate trends is expanding activity (growth) in domestic orders.

Within the last six months, the Index’s six components have moved in one of two diverging trajectories. Exports and backlogs have experienced an accelerating contraction that has weighted heavily on the overall Index. Conversely, supplier deliveries, production and employment have all rebounded from their 2019 lows and have since registering expanding activity levels for at least a month or more. New orders data, which collectively captures domestic and export activity, has also recovered to a lesser degree. Total new orders activity well above the level of export orders activity implies that domestic orders activity is most likely expanding.

These diverging paths suggest that the domestic economy is doing better than the headline numbers being reported suggest. It is also for this reason that Gardner expects greater foreign manufacturing competition in 2020 as global firms seek to sell into a relatively faster growing U.S market.