GBI: Finishing for November—46.8

Large finishing facilities expansion leads improved industry conditions, future capital spending index reaches peak.

With a reading of 46.8, the Gardner Business Index showed that the finishing industry contracted for the fifth month in a row. However, the index increased compared with the previous month for the first time since June. The improvement in the index was enough that it may have signaled that the industry has climbed out of the downtrend it has been on since June.

New orders contracted for the fifth month in a row. The index improved significantly compared with the previous two months. Production increased for the first time since June. Because the new orders index has been weaker than the production index, backlogs have been contracting at an accelerating rate. Backlogs have contracted at a steadily accelerating rate since January, indicating that capacity utilization in the finishing industry will contract through at least the first half of 2016. Employment contracted for the second month in a row. Exports have tumbled due to strengthening of the dollar over the last 12 months. Supplier deliveries have lengthened at a significantly faster rate each of the last three months.

Material prices decreased for the third month in a row. The index was at its lowest level since the survey began in December 2011. The material prices index has dropped considerably since reaching its peak in June 2014, correlating with falling commodity prices due to a weaker global economy. Prices received decreased for the third month in a row. In November, the rate of decrease was the fastest since February. Future business expectations improved from last month but generally have weakened since their peak in March.

The improvement in the index was the result of significant expansion at larger facilities in November. Plants with more than 250 employees grew at a rapidly accelerating rate for the second month in a row. Facilities with 100–249 employees expanded for the second month in a row and have mostly grown since January 2014. But, finishers with fewer than 100 employees continued to contract at a similar rate as in October.

The Southeast was the only region to expand in November, the first time the region had grown since August. The North Central-West and North Central-East regions contracted at the slowest rate in November, followed by the West, Northeast, and South Central regions.

Future capital spending plans reached their highest level since October 2014. They more than doubled compared with the previous two months. And, they increased compared with one year ago for the first time since October 2014.

Originally published in the January 2016 issue.