Economic News Blog
Posted by: Steven Kline, Jr. 4. August 2015

July GBI at 46.8 – Fourth Month of Accelerating Contraction

With a reading of 46.8, the Gardner Business Index showed that durable goods manufacturing contracted at an accelerating rate for the fourth month in a row. This is the first sustained period of contraction since the summer of 2013. Also, this was the lowest index since August 2013.

New orders contracted for the fourth month in a row. The drop in the index this month was quite steep. The index was at its lowest level since August 2013. Production contracted for the first time since December 2013. The backlog index has trended lower since March 2014. This month it fell below 40 and was at its lowest level since August 2013. The trend in backlogs indicated that capacity utilization in durable goods manufacturing will decline into 2016. Employment increased significantly, but employment tends to be a lagging economic indicator. Exports continued to contract because of the relatively strong dollar. Supplier deliveries lengthened at their slowest rate since August 2013, indicating that slack in the supply chain was increasing.

Material prices have increased at a constant rate the last three months. The index was still below the levels of the last two years though. Prices in composites were rising faster than prices in metals or plastics. Prices received contracted for the second month in a row. The index has trended lower at a slow rate since July 2014. Future business expectations ticked up slightly compared with last month but remain near their lowest level since August 2013.

Plants with more than 250 employees expanded after contracting last month. Facilities with 100-249 employees contracted for the second time in three months. Companies with 50-99 employees grew after contracting the previous month. Plants with 20-49 employees contracted for the fourth month in a row as their index fell to its lowest level since August 2013. Companies with 1-19 employees continued to contract. Their index fell to its lowest level since August 2013 as well.

The Southeast was the only region to grow in July. It has expanded for three straight months. It was followed by the Northeast, North Central-West, West, and North Central-East. The South Central has been the worst performing region since December 2014.

Only two industries with significant response to the survey were growing in July - electronics/computers/telecommunication and other manufacturing. Also growing, but with limited response, were ship building, appliances, and power generation. From slowest to fastest contraction, the remaining industries were automotive, aerospace, off-road/construction machinery, primary metals, industrial motors/hydraulics/mechanical components, plastics/rubber products, hardware, custom processors, metalcutting job shops, forming/fabricating (non-auto), machinery/equipment, petrochemical processors, furniture, HVAC, pumps/valves/plumbing products, oil/gas-field/mining machinery, medical, and military.

In addition to the overall durable goods index, we compute indices for a number of technologies or processes. All technologies contracted in July. From best to worst, the technologies were composites, moldmaking, screw machining, plastics, finishing and metalworking.

Planned capital expenditures improved from last month but were still only about 66 percent of their historical average. Compared with one year ago, spending plans have contracted by at least 26 percent each of the last five months.

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