Finishing Index Reports First Expansion in COVID Era
The Gardner Business Index (GBI): Finishing registered 50.8 in August, marking its first expansionary reading following COVID-19’s severe disruption of the economy. Readings above 50 indicate an expansion in economic activity compared to the prior month. The increase in the overall reading was broad-based, led by an 8-point increase in new orders and followed closely by production and employment activity. All three index components reported expansionary readings for the first time since at least February. Supplier delivery readings remain elevated, signaling that upstream suppliers to the industry continue to be slow to bring input goods to finishers at desired volumes. The latest reading was more than 5 points above the long-run average reading for supplier deliveries.
COVID-19’s economic impact on the finishing industry has defied textbook examples of a recession, due to its unique ability to shock both demand and supply. While, in a classic recession, there is a reduction in the demand for goods (which lowers sales), COVID-19 has further reduced sales via disruptions in the supply chain. Thus, even when there has been a willing demand for a product, in many cases there has not been available product to sell. In either case — whether lost sales are due to a shift in demand or a lack of available supply — the drag on the economy is the same. The industry will need both a quickening of supplier deliveries and the continuous expansion of new orders activity for a successful recovery.