July MBI Shows Industry Performance Moderating



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With a reading of 48.3, the Metalworking Business Index showed that the metalworking industry has contracted for the first time in three years. The contraction could be due to seasonal effects since July is when many manufacturing facilities slow down or shut down for maintenance. Also, after three years of growth, one month of contraction compared to the previous month means that the metalworking industry is still operating at very high levels. However, since March 2012 there has been a steady decline in the growth of the metalworking industry.
Both the new orders and production subindices fell significantly in July, moving from growing to contracting. However, during the three-year expansionary period, both subindices have been at lower levels. Employment continues to expand, although it is growing at a slower rate. Backlogs are contracting at the fastest rate since the expansion began. With new orders contracting faster than production, the industry could see backlogs contract further. Exports continue to contract as the dollar strengthens against other currencies. The one bright spot is that supplier deliveries continue to lengthen. This indicates that manufacturing, in general, is still operating at a fairly lean level, especially with backlogs contracting so sharply.

The future business expectations subindex has fallen below its historical average, which means that owners/managers are less optimistic than usual. Certainly, the significant drop in backlogs has contributed to this. Also, the Supreme Court’s decision on healthcare was announced shortly before this survey. A similar reduction in optimism occurred last year during the government’s debt ceiling debate. Business owners and managers are more optimistic when conditions appear more stable.