May MBI at 47.8, the Contraction Continues

With a reading of 47.8, Gardner’s Metalworking Business Index showed that the industry contracted in May for the second straight month, at virtually the same rate as in April, after 15 consecutive months of growth. The industry last contracted at this rate in April and May of 2013, but at that time, the industry had mostly been contracting for the previous year. At least this year’s contraction came from a much better starting point.

After surging in March, new orders contracted the following two months, and production contracted for the first time since September 2013. Since the beginning of 2014, production has grown at a faster rate than new orders, therefore the backlog index has steadily fallen over that same time period. While the backlog index improved somewhat from April, it remained on the down trend it began in early 2014. Compared with one year earlier, backlogs have contracted more than 10 percent for five months in a row. Current trends in backlogs indicate that growth in capacity utilization will continue to decelerate. Employment increased very slightly in April to the lowest point since it last contracted in September 2013. Exports have not expanded since August 2011, and they have contracted at a consistent rate in 2015. Supplier deliveries continued to lengthen but at a much slower rate than at any time since January 2014.

Material prices increased over April, but the rate of increase was still less than that for the last six years. Prices received increased after decreasing in April, but future business expectations have fallen rather significantly in both months to their lowest level since September 2013. The current level is about 5 percent below the historical average.

Future capital spending plans continued to be hit hard in May, contracting at the fastest rate since June 2012. The annual rate has contracted at an accelerating pace for six months in a row.