Finishing Index: Contraction Continues

With a reading of 49.4, the Gardner Business Index showed that the finishing industry contracted for the second month in a row. The index improved in May from April, which indicated that the contraction slowed this month. Despite the slower contraction, the finishing index stayed on the down trend it began in June 2014. Compared with one year ago, the index has contracted for three straight months. While the annual rate of change was still growing in May, the industry has recently had signs of weakness.

After a flat month in April, new orders increased slightly in May. Production increased at a slightly faster rate than last month and has increased every month but one since December 2013. Because production has been stronger than new orders for some time, the backlog index has contracted significantly. In the last two months, the backlog index has had its lowest readings since August 2013. The trend in backlogs indicated that capacity utilization has peaked and will see slower growth or outright contraction for the remainder of 2015. Employment has increased every month but one since December 2013. Exports have contracted every month in 2015, but the rate of contraction has slowed in the last two months. Supplier deliveries lengthened in May for the first time in three months.

Since material prices were unchanged in March, they have increased sharply over the last two months. However, the rate of increase was still lower than at any time since September 2012. Prices received have increased in the last two months. Since the summer of 2014, prices received had fairly solid increases while material prices had decelerating increases. Therefore, the relative changes were a boost to profits. However, that trend may have changed. The future business expectations index fell the last two months, though they have been above average since November 2013.

All but the smallest finishers expanded in May. Companies with 100–249 employees and 50–99 employees expanded after contracting the previous month. Finishers with 20–49 employees expanded for the third month in a row, but their rate of expansion has decelerated each month. Shops with fewer than 20 employees contracted for the third straight month, with a particularly significant contraction the last two months.

The West was the fastest growing region in May. The North Central-West grew at almost the same rate as the West and the Northeast expanded, although minimally, for the fourth consecutive month. The North Central-East contracted at a significantly accelerating rate each of the last two months. During that time its index fell to 42.7 from 52.1.

Future capital spending plans have been below average since July 2014. Compared with one year ago they have been hit particularly hard in the last seven months. In May, they contracted 46.9 percent from one year ago, the fastest rate of contraction since the survey began in December 2011.

Originally published in the July 2015 issue.