Manufacturing Sector Nears Sustainable Equilibrium

Supplier Deliveries and Production continue to lead economic activity in the manufacturing sector.

The Gardner Business Index (GBI) moved slightly lower in April to 52.9, marking the fourth consecutive month of slowing growth since January when the Index registered 53.9. The Index has fallen 10.7% from the same month one year ago. For context, 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 previous month. Gardner Intelligence reviewed the underlying data for the month and observed that the Index – calculated as an average of its components – was supported by supplier deliveries, production and employment. The components which lowered the Index included backlogs and exports. New orders also lowered the Index, as it registered slightly below the average of the components. Both backlogs and exports contracted during the month.

According to the GBI, manufacturing activity between the end of 2018 and the present has been consistently driven by activity in production and supplier deliveries, with new orders and employment supporting it to a lesser degree. One significant change in the manufacturing sector in the year-to-date period has been in backlog activity, which a year ago was near record-high levels of expansionary activity and in recent months has contracted to levels last seen in late 2016. That backlogs have transitioned from strongly expanding to modestly contracting is not in itself concerning, as indefinitely expanding backlogs would indicate continually unbalanced supply and demand. Since early 2018, many of the Index’s components have reported slowing growth, a situation which may be more appealing than one of rapid and volatile sector expansion and contraction. Gardner’s 2019 outlook continues to be one of measured optimism for the sector due to a relatively strong domestic economy and low unemployment.

Further indications that the manufacturing sector is nearing a sustainable equilibrium can be seen in Gardner’s survey data tracking input costs and prices of goods sold. In the last 12 months, both measures – calculated as indices – have decelerated after reaching all-time highs in 2018. After being more than 15% above their long-run averages, the latest readings for input costs and price of goods sold are now 4.7% and 5.4% above their respective historical averages.

The fastest growing industries during the month were oil & gas, hardware, aerospace, custom processors, primary metals, industrial motors/hydraulic/mechanical components, electronics/computers/telecommunications, pumps/valves/plumbing products, medicalplastics/rubber products, forming/fabricating (non-auto), 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, Mold Making, was the fastest growing technology; it was followed by Production Machining, Plastics, Composites, Metalworking, and Finishing. All technologies expanded during the month.

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