Index Continues Downward Trend

In August, the index contracted for the fourth time in five months.

With a reading of 46.1, the Gardner Business Index showed a downward trend that began in June 2014. The index contracted four times in the last five months, falling to its lowest level since August 2013. Compared with one year ago, the index has contracted for six months in a row.

New orders contracted for the second month in a row, but slowed somewhat compared with last month. The new orders index has also trended lower since March, and production also contracted for the second month in a row, at a slightly accelerated rate compared with last month. Generally, the production has been slightly above the new orders index. Therefore, the backlog index has contracted at an accelerating rate since April 2014. Despite a slight improvement from last month, the backlog index remained near its lowest level in the last two years and the trend in backlogs indicates that capacity utilization will fall heading into 2016. Employment has increased over the last two months, but exports have tumbled due to strengthening of the dollar. In August, the export index fell to its lowest level since December 2012. Supplier deliveries were unchanged, increasing at the slowest rate in the last five months since the survey began in December 2011.

Material prices were unchanged in August, which is just the second time since December 2011. Future business expectations fell sharply in August, their lowest level since September 2013. August was the first month that expectations were noticeably below average since November 2013.

Plant activity at facilities with more than 250 employees fell the last two months, but plants with 100–249 employees expanded for the fourth month in a row, growing at their fastest rate since March 2012, yet finishers with fewer than 20 employees remained mired in contraction.

The Southeast was the fastest growing region for the second month in a row, expanding for three straight months. The only other region to grow was the Northeast. The West contracted for the third month in a row, but the rate of contraction decelerated significantly the last two months. The North Central-East contracted for the fourth time in five months. The South Central contracted at the same rate as the North Central-East, but this was a significant improvement in the index for this region. The North Central-West contracted at the fastest rate in August, the worst month for this region since December 2012.

Despite all of the negative trends, future capital spending plans reached their highest level since October 2014, virtually doubling from two months ago. Compared with one year ago, future capital spending plans contracted for the 10th month in a row, though the rate of contraction was much slower than in the previous nine months.

Originally published in the October 2015 issue.