Precision Machining Index Ends October at 16-Month High
New Orders and production lift Index, while supplier deliveries cast a shadow.
Precision Machining Business Index: The Index reported a slight expansion in overall business activity in part due to slowing supplier deliveries, but also expanding production and new orders activity. Overall activity would have still improved if not for the inflationary influence of supplier delivery activity.
Registering 52.5 for October, the Gardener Business Index: Precision Machining reported its second expansionary reading in the last three months. (See September Index.) The Index was lifted by expansionary (above 50) readings for supplier deliveries, new orders and production activity. For a third consecutive month the production activity reading exceeded that of new orders. This relatively greater activity in production may, in part, explain why backlogs continue to contract. Export, employment and backlog activity all registered higher, but still below ‘50’ readings for the month. (Rising readings below ‘50’ indicate slowing contraction or, in other words, that the given business activity type is exerting less drag on the overall index.)
Slowing Deliveries May Hamper Production Through Year End: Lengthening delivery times due to the current surge in shipping demand may be causing an inflated supplier delivery reading. Overwhelming demand on shippers may delay deliveries and stymie production activity in the short term.
Supplier deliveries led the way higher with a 4-point gain and a month-end reading of nearly 60. This is the only component of the Index which rises inversely to its activity level. It is for this reason that October’s slowing supplier deliveries activity caused this reading to rise and consequentially inflated the Index’s overall result. In a normal economic cycle when business activity is expanding upstream, suppliers would normally experience strong demand for their goods, resulting in increasing backlogs. Lengthening backlogs increase the time needed for the delivery of goods to downstream manufacturers. However, in the present situation, upstream supplier deliveries are being impeded as a result of disrupted supply chains due to COVID-19 and from a sharp increase in overall demand for freight services. It is these unanticipated factors which are slowing supplier delivery times and fostering the consequential rise in the supplier delivery reading.
About the Author
Michael Guckes is chief economist at Gardner Intelligence, the research and market intelligence division of Gardner Business Media. He provides forecasting, modeling and consulting services to clients and provides content for all Gardner brands. For more information about Gardner’s Business Index, visit gardnerintelligence.com.