April MBI: Industry Contracts Slightly

With a reading of 48.5, the MBI showed that the metalworking industry contracted slightly in April after growing in March. Since the noticeable contraction in the second half of 2012, the industry has been virtually flat.

The real story through the first four months of 2013 is the diverging performance across plant sizes. Facilities with more than 50 employees have grown in every month. Those with fewer than 50 employees have continued to contract, however, and facilities with fewer than 19 employees continue to contract at the same rate they did in the second half of 2012. Primarily, it is small job shops that pulled the index back below 50.0 in April. Shops dedicated to specific industries are showing much better performance in the first four months of this year.

New orders contracted for the first time since December 2012, and this was the most significant reason the index moved below 50.0. Production, however, continued to grow, albeit at a slower rate than in March. These subindices contributed to the faster contraction in backlogs, but there is likely also some over-capacity in the metalworking industry. This would further explain why backlogs have contracted since April 2012 and why smaller job shops are performing worse than shops dedicated to specific industries. Employment continued to grow in April, while exports continued to contract. Supplier deliveries continued to lengthen, but at almost the slowest rate since August 2011.

Material prices are still growing, but at a much slower rate than the previous two months. Prices received were virtually flat. The combination of these two trends, contracting new orders and growing employment continues to put pressure on profits at metalworking facilities. Future business expectations dropped in April, but they are still above almost every month since July 2012.