October Index at 49.4, First Contraction Since December 2013

The annual rate of change continued to grow at a strong rate, but it decelerated for the first time since it began growing in February.

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With a reading of 49.4, the Gardner Business Index showed that the production machining industry contracted at a moderate rate for the first time since December 2013. Compared with 1 year ago, the index fell 1.0 percent. This was the first month-over-month contraction since September 2013. The annual rate of change continued to grow at a strong rate, but it decelerated for the first time since it began growing in February.

New orders contracted for the first time since November 2013. The trend in new orders has steadily declined since January. Production expanded for the 10th consecutive month. The rate of growth increased slightly from September. Backlogs have contracted 3 of the previous 4 months. Compared with September, the backlog index improved slightly. But, compared with 1 year ago, the backlog index contracted 12.9 percent, which was the first time it had contracted since August 2013. The annual rate of growth in backlogs is still very strong. Therefore, the trend in backlogs indicates significant increases in capacity utilization and capital equipment consumption in 2015. But, capacity utilization should see its peak rate of growth in the second quarter of 2015. Employment continued to grow, but the index was at its lowest level of 2014. The contraction in exports has steadily picked up steam since June because of the rising dollar. Supplier deliveries continued to lengthen, and they have done so at a fairly consistent rate this year.

While material prices were increasing at a significantly accelerating rate earlier this year, the previous 4 months have seen a lower rate of increase. Prices received decreased for the first time since April. After stabilizing last month, future business expectations dropped significantly once again in October. They were at their lowest level in October since September 2013.

Shops with 50-99 employees expanded at the fastest rate by far in October. They have seen strong growth throughout 2014. Facilities with more than 100 employees contracted for the first time in about a year. It was the performance at these large facilities that caused the overall index to fall below 50.0. Shops with 20-49 employees grew once again after contracting in September. Shops with fewer than 20 employees contracted at their fastest rate since November 2013.

The North Central – East was the only region to expand in October. It has grown every month this year. While the Southeast region grew at the fastest rate in September, it contracted at the fastest rate in October. Its index drop to 42.1 from 55.7. The Northeast, West, and North Central – West regions also contracted.

Future capital spending plans for the next 12 months increased 38.8 percent compared with 1 year ago. This was the second month in a row that the month-over-month rate of growth was above 30.0 percent. The annual rate of change grew for the second month in a row after contracting 7 of the previous 8 months.