Business Index Extends Expansion Post Tariffs
October’s Index Fortified by Supplier Deliveries, Production and New Orders
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October’s Precision Machining Index reading provided encouraging news about the on-going economic expansion with supplier deliveries, production and new orders all driving the total index higher.
As the second fastest expanding component of the GBI: PM index, recent new orders growth appears to be more than offsetting the losses of export orders as suggested by expanding backlogs.
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Registering 56.3 for October, the Gardner Business Index (GBI): Precision Machining moved slightly higher as new orders and employment moved strongly higher. Compared with the same month one year ago, the index decreased by 2.1 percent. For an eighth consecutive month, supplier deliveries have been the fastest expanding component, playing a significant role in sustaining the overall index’s expansionary readings. Beyond supplier deliveries, Gardner Intelligence’s review of all underlying components reveals that production and new orders also supported the index’s latest reading. The index’s average-based calculation was pulled down by employment, backlog and exports. Only exports reported a contractionary reading during the month.
Despite exports recording a second month of contraction, new orders recorded a sharp gain in October. The latest new orders reading is the highest since March and places this component back above its average level since the current business expansion started. The current export environment for U.S. manufacturers is dynamic and complex. Not only have foreign tariffs on U.S. goods at rates as high as 25 percent hurt the competitiveness of U.S. precision machinists, but a strong dollar has added to their struggles. The value of the dollar in the 7-month period ending in early November has appreciated by 11 percent against the Chinese Yuan for a combined effect that now makes U.S. exports as much as 34 percent more expensive than they were only a few months ago.
Nevertheless, Gardner continues to be encouraged by the domestic economic environment and the substantial expansion of supplier deliveries, new orders and production. New orders and production are considered significant leading indicators of the future health of manufacturing. Almost two years of virtually uninterrupted backlog expansion combined with low U.S. unemployment are very strong reasons for precision machinists to seek to replace lost opportunities abroad with new domestic opportunities.
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