June GBI at 47.1 – Durable Goods Manufacturing Contracts

With a reading of 47.1, the Gardner Business Index shows that durable goods manufacturing contracted noticeably in June 2013. Compared to last June, the index was 7.5% lower. For the first five months of 2013, business activity in durable goods had been essentially flat. June represents the first major move in the index since December 2012.

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. Not only did that trend continue in June, but the gap in performance widened. Facilities with more than 100 employees continued to grow at a similar rate. Facilities with fewer than 50 employees performed more poorly than last month. In fact, the index for these smaller facilities showed its fastest rate of contraction since December 2012. Mid-size shops, those with 50-99 employees, moved from expansion to contraction in June, which was the first month of contraction for these shops since December 2012.

I think this data points toward some short term over capacity in U.S. manufacturing. This is likely a result of a slowdown in orders and the lack of inventory buildup throughout durable goods manufacturers and retailers. It seems as though there are enough orders to keep business activity at OEMs growing but that there is enough work to be outsourced to lower tier manufacturers and job shops. Other data in our survey and general economic data seems to support this.

Regionally, none of the nine regions expanded in June. The West South Central region remained flat for the second straight month. The New England, West North Central, and South Atlantic regions moved from growth to contraction. The East South Central and Mountain regions saw a slower rate of contraction. The East North Central, Middle Atlantic, and Pacific regions saw a faster rate of contraction.

Both new orders and production contracted in June. The rate of contraction in new orders was faster than the rate of contraction in production. Therefore, backlogs contracted at their fastest rate since December 2012. Employment continues to expand, but it did so at its slowest rate in 2013. With the strengthening dollar, exports continue to contract. Supplier deliveries continued to lengthen, but they did so at the slowest rate since December 2011, which was the first month of this index. This indicates that activity throughout the supply chain is at its weakest level since that time. Material prices increased at a slightly faster rate while prices received increased at a slightly slower rate. While future business expectations were slightly less optimistic than last month, they were consistent with expectation levels throughout 2013, which are above where they were in the second half of 2012.

Planned capital expenditures have been flat the past four months although the planned level of spending is still above the historical average. Also, the month-over-month growth rate of planned capital expenditures has grown faster each of the last two months.

In addition to the overall durable goods index, we compute indices for a number of technologies or processes. The moldmaking industry was the only one that grew in June. Plastics moved from growth to contraction, but was essentially flat in June. Composites moved from flat to contraction. Metalworking, finishing, and precision machining all contracted faster.

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.