Economic News Blog
Posted by: Michael Guckes 1. August 2019

GBI Provides Contractionary Reading in July

July GBI

 

The Gardner Business Index (GBI) experienced its first contraction reading in over two years, registering 48.2 for July. The Index has fallen 13.9% from the same month one-year ago. 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 magnitude of activity change. Gardner Intelligence’s review of the underlying data for the month observed that the Index – calculated as an average of its components – was supported by supplier deliveries and employment, which are often the slowest-responding components of the Index during a change in business activity. In contrast, new orders and production, the most sensitive Index components, both registered contracting readings for July – an event which has not happened since mid-2016. These components joined exports and backlogs in contracting during the month.

The contraction in both exports and new orders appears to have put additional pressure on backlog levels which fell to their lowest reading since September of 2016. These declines and the ongoing contraction of backlog and export readings likely played a contributing role to manufacturers slowing their production activity for the first time since July of 2016.

In the immediate future, it will be important for business leaders to monitor additional changes in new orders demand, as this component often directionally leads production, backlogs, supplier deliveries and employment. Given the evolving trade picture between the U.S. and Asia, along with political turbulence and economic weakness in Europe, the strength and direction of the U.S. economy will be of ever-greater importance to U.S. manufacturers through the remainder of 2019 and potentially longer.

The fastest growing industries during the month were aerospace, primary metals, automotive, medical, and pumps/valves/plumbing products. All other industries tracked by Gardner Intelligence contracted during the month. In addition to the overall durable goods index, Gardner Intelligence computes indices for several technologies or processes. For the month, Moldmaking was the fastest growing technology; it was followed by Metalworking, Finishing, Composites, Production Machining and Plastics. Only metalworking expanded during the month.

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