Economic News Blog
Posted by: Steven Kline, Jr. 1. March 2013

February GBI at 50.0 – Durable Goods Manufacturing Flat

With a reading of 50.0, the Gardner Business Index showed that durable goods manufacturing was flat in February 2013 compared to January 2013. This is the first time since June 2012 that durable goods manufacturing did not contract. Durable goods manufacturing has leveled off quickly after reaching its fastest rate of contraction in November 2012. There has been growth the last two months in manufacturing facilities with more than 50 employees while those facilities with fewer than 50 employees are still contracting but at slower rates. Five (East North Central, Mountain, New England, Pacific, and South Atlantic) of our nine regions grew in February. The East South Central region is clearly lagging and its rate of contraction picked up significantly.

Both new orders and production grew for the second month in a row. In February, new orders grew at a slightly slower rate while production grew at a faster rate. Changes in these two sub-indices are important because they are the drivers of virtually all the others. Employment also grew for the second month in a row. The rate of hiring picked up slightly compared to January. Supplier deliveries lengthened for the 15th consecutive month. This indicates that companies have kept their inventories in check relative to their orders and shipments. While backlogs contracted for the 11th month in a row, they made a positive contribution to the GBI as the rate of contraction slowed significantly compared to January. This was the slowest rate of contraction in backlogs since May 12. If new orders continue to grow faster than production, as they have the last two months, then we should see growth in backlogs very soon. Exports continue to be the most significant drag on performance in durable goods manufacturing. Exports have contracted for 10 straight months. For most of that period the U.S. dollar appreciated against most other currencies month over month. However, each of the last two months the U.S. dollar has declined month over month against most other currencies. Also, the broad U.S. dollar index is at its lowest level since March 2012 and the latest round of quantitative easing by the Federal Reserve has just started kicking in. This gives some hope on the export front.

Material prices continue to increase. And, they are increasing at the fastest rate in the 15th month history of the GBI. That’s the flip side to the increased quantitative easing by the Federal Reserve. Prices received by durable goods manufacturers grew for the second consecutive month. However, the growth rate is nowhere near its peak, was slower than in January, and is significantly lower than the growth rate in material prices. Combined with increased hiring, profits are under pressure. Future business expectations just barely improved compared to January, but they are at their highest rate of improvement since June 2012.

Durable goods manufacturers continue to increase their capital spending plans. Since the survey was started in December 2011, February was the first month where spending plans for the next 12 months topped $1 million. February’s future spending plans were nearly double what they were in November 2012, which was the lowest reading ever for the GBI. Clearly, capital spending plans have rebounded sharply after the election.

In addition to the overall durable goods index, we compute indices for a number of technologies or processes. The moldmaking industry is growing the fastest followed by plastics processing. This is the first time moldmaking has grown since October 2012 and the second consecutive month of growth for plastics processing. Composites fabrication and screw/precision machining were both flat in February, ending five and eight months of contraction, respectively. Both, metalworking and finishing were essentially flat in February.

Also, you can find indices for the following end markets: aerospace; automotive; custom processors; electronics, computers and telecommunications; forming and fabricating (non-auto); machinery and equipment manufacturing; medical; metalcutting job shops; and primary metals.

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