Business Index Advances, Overshadowed by COVID-19 Concerns

The spread of COVID-19 across Asia and now more globally is having a significant impact on the world’s economy and the global supply chain.  Manufacturers need to be using data to drive their decision making during this challenging period and avoid the temptation to make gut decisions.

Special Consideration of COVID-19 “the Coronavirus” on Manufacturing:

Gardner Intelligence: Business Index 51.1

The spread of COVID-19 across Asia and now more globally is having a significant impact on the world’s economy and the global supply chain. COVID-19’s rapid spread means that its consequences will likely come quickly and be felt sharply. Having accurate and frequently reported data on the manufacturing sector is thus particularly critical for the success of manufacturing business owners and decision makers at this time. There are few resources available to the industrial sector which can track the health of the sector at the level of granularity that the GBI provides as well as on a monthly basis.

For this reason, we encourage all subscribers to Gardner’s publications to complete the GBI survey e-mailed to them each month. Your responses will help create an accurate picture of COVID-19’s impact on manufacturing. Your responses will help to quantify the speed and magnitude of the economic damage it is causing; but your participation will also help us to know when the inevitable recovery begins as well. Your help in measuring COVID-19’s true impact will help both you and your peers to make intelligent and informed decisions and provide an alternative to the temptation to make emotionally-driven decisions which could make a difficult situation worse.

The February Gardner Business Index (GBI) reported its first month of expanding business activity since July 2019.  The seven-month contraction in business conditions was led lower by weak backlogs and export orders along with weakness in new orders and production.  During the second half of 2019, both new orders and production activity registered four months of contracting business activity.  In contrast, data collected during the early months of 2020 has indicated expanding activity in production, new orders, supplier deliveries and employment.  Unfortunately export orders and backlogs continue to constrain the Index from making further immediate gains. Index readings above 50 indicate expanding activity while values below 50 indicate contracting activity. The further away a reading is from 50 the greater the magnitude of activity change.

February’s data implied a second month of expanding domestic new orders activity due to the widening spread between expanding total new orders activity and contracting export orders. The implied increase in domestic order activity may in part explain the recent gains in production, supplier deliveries and employment activity, all of which has lifted the GBI to new recent highs.

The gains reported in February were welcomed but unexpected given the economic ramifications that the Coronavirus, more accurately known as COVID-19, has had and continues to have in China as the government there works to contain its spread.  The wide-spread shutdown of Chinese factories, business and the restriction of travel can be expected to have a severe ripple effect around the world.  Gardner’s expectations of February’s GBI results as a result of COVID-19 were for a decrease in export orders and supplier delivery activity as supplies become relatively scarce.  An increase in the price of manufacturing inputs due to their growing scarcity and a decline in business sentiment.  The February data did not prove out most of Gardner’s expectations.  We believe that this was simply because U.S. manufacturers overall had not yet felt the impact of China’s abrupt and significant economic slowdown as we approached the end of February.  Our March expectations remain unchanged from those we had anticipated in February.

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