June Index at 50.3—Tepid Growth Returns

After two months of contraction, the industry recorded modest growth in June.

With a reading of 50.3, the Gardner Business Index showed that the finishing industry expanded after two months of contraction. The industry has grown four of the last six months, but the overall trend of the index has been down since June 2014. A further increase in the index next month would break the down trend, but if it holds, the index will likely fall back below 50.0 next month, indicating more contraction.

After a flat month in April, new orders increased for the second month in a row. Production has increased at a noticeably faster rate in the last two months. The continued improvement in new orders and production is a positive sign. Because production has been stronger than new orders for some time, the backlog index continued to contract. Like the overall index, the general trend in the backlog index has been down since April 2014. This trend indicates falling capacity utilization within the finishing industry. Employment contracted for the first time in 2015 and just the second time since December 2013. Exports have contracted every month but one since June, which coincides with the dollar gaining strength against all other currencies. Supplier deliveries lengthened for the second month in a row, but at a slightly slower rate than most of last year.

Material prices have increased the last three months, although the rate increase slowed somewhat in June. The current rate of material price increase is still near the lowest in the history of the index, which began in December 2011. Prices received decreased for the third time in five months. Future business expectations softened for the third straight month. Their current below is right at the historical average.

All but the smallest finishers continued to expand in May. Companies with 100–249 employees had slightly slower growth in June, but they were still the fastest growing segment. Growth accelerated at plants with 100–249 employees, slowed at facilities with 50–99 employees and remained virtually the same at shops with 20–49 employees. Finishers with 1–19 employees contracted for the fourth month in a row, but the rate of contraction slowed significantly compared with the previous two months.

The Northeast was easily the fastest growing in June. It grew for the fifth month in a row. Both the North Central-East and Southeast expanded after contracting the previous two months. The North Central-West contracted for the third time in four months while the South Central contracted for the second month in a row. The West, which was the fastest growing region last month, contracted at the fastest rate of any region in the history of the index.

Future capital spending plans fell 64.9 percent compared with one year ago. The planned level of spending for the next 12 months was about 40 percent of the historic average. This was the eighth consecutive month that spending plans have contracted at least 27 percent compared with one year ago.

Originally published in the August 2015 issue.