Gardner Business Index: May 2017 — 55.1

Finishing Business Index records best reading in five years.

Registering 55.1 for May 2017, the Finishing Business Index reversed course from April. For the year-to-date period, the index has averaged 54.5. In the same five-month period in 2016 and 2015, the index averaged 46.8 and 51.6 respectively. The drivers of the overall index in the year-to-date period include Material Prices, Employment, Production and New Orders.

The Production, New Order and Employment components of the Finishing Business Index increased by 9 percent, 7 percent, and 5 percent respectively for the period ending May 2017 using a 12/12 rate of change (ROC) calculation. Production and New Orders are two of the most significant components of the Gardner Business Indices, and suggest strength in the finishing industry. A 12/12 ROC is calculated by summing the data for the last 12 months of data and then dividing that number by the sum of the values in the 12 months prior to that first year.

Conversely, the Exports and Material Prices components of the index are dampening further optimism. The Exports component—which in the last twelve months has averaged a reading of 46.3—represents a weak spot in the index. The Gardner Business Intelligence team will watch currency markets very closely in 2017 following the progression of Brexit, the U.S.’s changing stance on free-trade and trade agreements as well as the government’s efforts to make markets fairer for U.S. companies. Any of these political factors could generate unexpected shocks to currencies, and thus import and export dynamics and volumes.

The Material Prices and Prices Received index components indicate that input cost increases are being felt broadly and that manufacturers have yet to pass these costs onto customers to the same degree. A comparison of the Material Prices and Prices Received index components using a 12/12 ROC reveals that the Material Price index has increased by over 28 percent, while the Prices Received index has increased by just over 4 percent. Given this gap, finishing equipment prices may rise in the future as material price increases are passed downstream. 

GBI’s view of the future for the finishing industry is bright. A recent study by the Congressional Budget Office indicated that between 20 and 40 percent of future GDP growth in the U.S. will come from workforce growth with the remaining 60 to 80 percent coming from productivity. This growth will result from smarter and more capable machines, computers and other tools that enhance the productivity of workers. As increasing wages and a limited labor supply are experienced across manufacturing, now is truly an important time for finishers to collaborate with their machinery and chemical suppliers to utilize the latest equipment in order to power future growth.  

 


Originally published in the July 2017 issue.