GBI: Finishing for December 2015—45.0

Capital spending plans are on the rise; large facilities expand for third month in a row.

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With a reading of 45.0, the Gardner Business Index showed that the finishing industry contracted for the sixth month in a row. Other than a dip, followed by a spike in October and November, the index has been virtually unchanged since July 2015.

New orders contracted for the sixth month in a row. In the last two months, the index has been much higher than its low in October. The production index fell back to its low level of September and October after expanding in November. While the backlog index continued to contract at a significant rate, it has contracted at a slower rate the last two months. Still, the overall trend indicated a decline in capacity utilization in the first half of 2016 for the finishing industry. Employment was unchanged after contracting the previous two months. Exports have tumbled due to strengthening of the dollar over the last 12 months. Supplier deliveries were unchanged in December.

Material prices decreased for the fourth month in a row. While the rate of decrease slowed somewhat in December, the overall trend in the index has been significantly down since May 2015, which correlates with falling commodity prices due to a weaker global economy. Prices received decreased for the fourth month in a row and the rate of decrease accelerated for the second month in a row, the fastest since February 2015. Future business expectations were largely unchanged from last month, but generally have weakened since their peak in March.

Larger facilities continued to perform much better than smaller facilities. Plants with more than 250 employees and 100–249 employees both expanded for the third month in a row and facilities with 50–99 employees expanded for the first time since June 2015. Smaller facilities had a lower index in December. Companies with 20–49 employees had their lowest index since December 2012 and companies with fewer than 20 employees had their second lowest index since August 2013.

Every region contracted in December. However, the Southeast was virtually flat with an index of 49.8. The West, South Central, North Central-East and Northeast all had an index in the mid-40s. Each region contracted for at least the third month in a row. The index for the North Central-West dropped to 42.8. The region has contracted since June 2015.

Future capital spending plans improved somewhat from their low level in September and October. However, they were still quite a bit below their historical average. It does appear that capital spending plans have reached a bottom and are beginning to improve.  

 

Originally published in the February 2016 issue.