November MBI at 43.7 – Shops Wait and See

 With a reading of 43.7, the Metalworking Business Index showed that the metalworking industry contracted for the fifth consecutive month. Since March 2012, when the index was 57.0, the MBI has shown a nearly straight line decline. Currently, the index is at its lowest level since July 2009. If there is one thing business owners and managers do not like it is uncertainty. Since the survey was done in late November, it is likely that the election and the fiscal cliff weighed heavily on the results.

Three sub-indices, new orders, production, and backlog, played a major role in the accelerating contraction. New orders fell to 40.9 from 45.0, which is lowest level since July 2009. Production contracted faster for the third straight month, but it is not contracting as fast as new orders. With new orders continuing to fall faster than production, backlogs are wearing thin. The backlog index fell to 33.7 from 41.0, contracting for the ninth month in a row and reaching its lowest level since July 2009.
Two bright notes were employment and supplier deliveries. Employment remained flat in November, which means metalworking facilities are not so grim about the future that they feel the need to reduce employment. Also, supplier deliveries continue to lengthen. This indicates there is still enough work throughout the supply chain to keep companies busy.

While future business expectations fell to 57.0 from 63.3, reaching their lowest level since July 2009, metalworking facilities have not become overly negative about the future. As I already mentioned, employment has remained flat instead of contracting. And, planned spending on capital equipment over the next 12 months has remained flat the last three months. Despite the slowdown, shops appear to be taking a wait and see approach instead of cancelling future investments.