July GBI at 48.5 – Durable Goods Contraction Slows

With a reading of 48.5, the Gardner Business Index shows that durable goods manufacturing contracted at a slower rate in July 2013. Compared to one year ago, the index in July was higher for the first time since at least December 2012. This month-over-month change indicates that the momentum in the industry is increasingly positive.

Throughout 2013 there has been a discrepancy in performance based on facility size. Facilities with more than 50 employees were growing while facilities with fewer than 50 employees were contracting. That trend has continued in July. But, facilities with 20-49 employees experienced noticeably improved conditions in July. Their index level, 49.8, showed virtually flat business activity. This was the second highest index for this size facility since October 2012. The smallest manufacturers, those with fewer than 19 employees, continued to experience deteriorating conditions. Their index has contracted faster each of the last two months, reaching its lowest level since December 2012.

The overall index would be growing except for the performance of metalcutting job shops. The only market contracting faster in July was pumps, valves, and plumbing products. Along with these two, the only other two industries I track that were contracting in July were forming and fabricating (non-auto) and machinery and equipment. The electronics industry has been the strongest performing in 2013. Its rate of growth was by far the fastest in July and it has grown seven of the last 10 months. The aerospace industry is also quite strong, growing at the second fastest rate in July and six of the last seven months. In order of growth rate in July, other growing industries include: industrial motors, hydraulics, and mechanical components; medical; custom processors; petrochemical processors; plastics and rubber; and automotive.

While none of the regions grew in June, five of the nine regions grew in July. The Mountain region grew at the fastest rate and for the first time since February 2013. The West North Central grew for the fifth time in seven months. The West South Central, East South Central, and New England all moved from flat or contracting to growing. The Middle Atlantic continues to be the poorest performing region. It had the fastest rate of contraction in July and has contracted since May 2012, which is by far the longest period of contraction.

All of the sub-indices contributed positively to the improvement in the overall index. New orders contracted for the second month but at a slower rate. Production contracted for the second month but was basically flat compared to June. Backlogs remained mired in contraction but did improve slightly. Employment grew faster than it did in June, extending its string of growth to seven months. Exports are in a similar pattern as backlogs. Supplier deliveries lengthened at a faster rate. The string of longer supplier deliveries has continued for 20 months. Material prices have seen accelerating price increases since the beginning of the year. At the same time, prices received have grown modestly or been flat. Future business expectations reached their highest level since May 2012.

Planned capital expenditures were at their highest level since February 2013. They are nearly 25% above the historical average. Compared to the same month one year ago, planned capital spending has been growing faster each of the last four months. In July 2013, planned capital spending was up 32.0% compared to July 2012

In addition to the overall durable goods index, we compute indices for a number of technologies or processes. While none of the industries grew in July, plastics was flat. The plastics industry has been the strongest performer in 2013. Moldmaking barely contracted after two months of growth. Metalworking appears to rebounding after four months of contraction. Composites, finishing, and precision machining are generally experiencing their poorest business conditions of the year.

Also, you can find indices for the following end markets: aerospace; automotive; custom processors; electronics, computers and telecommunications; forming and fabricating (non-auto); industrial motors, hydraulics and mechanical components; machinery and equipment manufacturing; medical; metalcutting job shops; petrochemical processors; plastics and rubber; primary metals; and pump, valves, and plumbing products.