Finishing Index Starts Year With Quickening Expansion
January Finishing Index: 51.8
The Finishing Index moved higher during the first month of 2019 due to strong expansion in both production and new orders. Backlogs contracted in January because, in part, production expanded faster than new orders.
January’s strong expansionary reading for production and slower-growing supplier deliveries reading may indicate that the industry is nearing a new supply and demand balance. In the history of the Index, there has never been such expansionary demand for finished goods as in the period between 2017 and present.
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The Finishing Index logged additional acceleration at the start of 2019 with a 51.8 reading, marking a slight improvement over December’s reading. The Index has fallen 9.0 percent compared to the reading from one year ago. At the start of 2018, the Index was accelerating toward what would become an all-time high reading in March. Since then, the Index has indicated slowing growth within the industry, which is not to be mistaken for an industry contraction. The latest reading was supported by a strong expansion in production, new orders and employment. The components which pulled the index lower—calculated as an average of the components—included supplier deliveries, backlogs and exports. Backlogs and exports both contracted in January.
January marks the first time since May of 2018 that the supplier delivery reading was not the leading (fastest growing) component of the Finishing Index. During the early months of 2018, new orders and production both registered multiyear highs before registering slower growth during the remaining months of the year. The slower growth of supplier deliveries at the start of 2019 may indicate that the finishing industry’s supply chain is approaching a new equilibrium with demand for finished goods and services.
This potentially new equilibrium, however, may be disrupted by the ongoing trade negotiations with several of America’s largest trading partners. Exports contracted sharply during the second half of 2018, leaving domestic demand to fill the gap. Recent months of contracting backlog readings suggest that the recent months of domestic demand are not completely replacing lost export demand.
