Economic News Blog
Posted by: Michael Guckes 5. June 2019

May GBI Shows Modest Growth

The Gardner Business Index (GBI) registered slower growth in its latest reading, finishing May at 50.8, a 13.6% drop from the same month one year ago. All Index readings above 50 indicate manufacturing activity expansion, while values below 50 indicate contracting activity and a reading of exactly 50 indicates no change in activity from the prior month. 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 production, supplier deliveries, employment and new orders. Exports and backlogs both contracted during the month, pulling the Index lower. For the second time since late-2016, backlog activity registered as the fastest-contracting component of the Index. In both instances, backlogs contracted only slightly more than exports.

May’s reading brings the GBI to its lowest reading since December of 2016, when it had crossed above 50 for the first time since April of 2015. Looking at past periods when the overall Index has fallen into contractionary territory, Gardner has observed that exports and backlogs tend to contract several months before new orders begin contracting, which is then quickly followed by production and employment declines. This sequence of events occurred in both 2012 and 2015, and the lag between the initial contraction in backlogs and exports and the later contraction of the overall index took nearly a full year in the 2015 cycle. If that example serves as a guide for the future, then the Index may remain above 50 through nearly all of 2019.

However, every economic cycle has its own unique behavior, and given the present strength of both employment and consumer finances in the U.S. it is nearly certain that this current economic cycle could very easily break with past trends. A tight labor market with low unemployment should be expected to do a great deal of good for domestic demand for manufactured goods. Despite a worsening contraction of exports since the third-quarter of 2018, total new orders activity as recorded by the Business Index in many of these months has expanded, suggesting that domestic demand has filled the vacuum created by shrinking foreign sales.

The fastest growing industries during the month were power generation, aerospace, hardware, medical, primary metals, construction machinery,  machinery/equipment, oil & gas, automotive, and metalcutting job shops. 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, Production Machining was the fastest growing technology; it was followed by Composites, Metalworking, Finishing, Moldmaking and Plastics. All technologies expanded during the month.
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