Published 11/28/2018

Deliveries, Production and New Orders Lead Index Expansion

Weakness in exports seems to have little effect on total new orders.

Economics

Former Chief Economist & Director of Analytics, Gardner Intelligence

Metalworking Business Index:

Supplier deliveries, new orders and production all drove the Metalworking Index reading higher during October. Among all components, only exports contracted.

GBI:Metalworking—Supplier Deliveries & Backlog (3MMA)

For a seventh consecutive month, supplier deliveries registered the fastest expansion among all other components. Despite the unprecedented pace of increased supplier deliveries, a long upward trend in backlog readings going back to early 2017 continues to persist.

Registering 57.7 for October, the Gardner Business Index (GBI): Metalworking extended its accelerating growth trend since its recent July low. It seems 2018 is likely to achieve the highest average index reading of any calendar year in recorded history. (The current record of 55.8 set in 2017, beat by a wide margin the prior record of 52.8 set in 2014.) For a sixth consecutive month, supplier deliveries continued to be the leading component driving the total index higher, followed by new orders and production. The readings for employment, backlogs and exports, however, lowered the index’s average-based calculation.

The latest readings of supplier deliveries, production and new orders do not indicate that an immediate change of course in metalworking manufacturing has or is taking place. In fact, the latest readings continue to be within the same elevated range of readings that were first recorded in early 2017. Furthermore, there is a long-running positive trend in backlog growth between early 2017 and continuing through the present, which further suggests that demand is still outstripping the available supply of output.

Despite contractionary export readings in both September and October, total new orders growth has expanded faster in each month since taking an unexpected dip during the second quarter of the year. Chinese tariffs on U.S. exports to China, a strengthening U.S. dollar in foreign currency exchange markets and changing regulations that have acutely affected automotive production across the United States, Mexico and Canada are some of the many factors that may be slowing U.S. export volumes.