Encouraging GBI Implies Expanding Domestic Demand
January’s GBI reading ends a five-month trend of accelerating contraction in manufacturing, representing the highest Index reading since June of 2019.
January’s reading is encouraging it ends a five-month trend of accelerating contraction in activity. Additionally, it represents the highest Index reading since June of 2019.
The Gardner Business Index (GBI) moved higher in the first month of 2020 to close at 49.6. By comparison, a reading of exactly 50 would have implied no change in total business activity. Therefore, January’s number indicates that business conditions contracted only very slightly for the month.
January’s reading is encouraging for several reasons. Foremost, it ends a five-month trend of accelerating contraction in activity. Secondly, it represents the highest Index reading since June of 2019. Index readings above 50 indicate expanding activity while values below 50 indicate contracting activity. The further away a reading is from 50, the greater the magnitude of activity change.
Gardner Intelligence’s review of the underlying data for the month observed that the Index – calculated as an average of its components – was lifted by expanding activity in production, followed by new orders and a very modest contraction in supplier deliveries. The Index was pulled lower by exports, employment and backlogs.
Taken together, January’s expansionary readings for production and new orders activity – when coupled with contracting exports activity – implies that expanding domestic demand for manufactured goods is not only offsetting weak foreign demand, but also supportive of domestic production. As a leading component of the GBI, fluctuations in new orders and exports drive reactionary responses in production, supplier deliveries and employment, often in this order. Furthermore, the variance between total new orders and total production influences backlog levels. If future months of data show sustained expansion in new orders, one can expect to see other components of the Index also rebound.
In three of the last four months, readings for new orders activity were relatively high compared to production’s, despite a steep and simultaneous contraction in backlog activity. January’s backlog rose in excess of 5 points, despite production’s leading role in the month’s results, which may be signaling a return towards the expected equilibrium between these measures. Backlog activity in January contracted at its slowest rate since April 2019. Similarly, rising export readings in the last three-months represent an average last reported in the first quarter of 2019.
The start of the year saw firms in excess of 250 employees in size expand at the fastest rate since April. This was followed by slower expansionary growth in firms with 50 to 99 employees, and lastly firms between 100 and 250 employees in size. Firms with 20 to 49 employees reported only very mild contraction in overall business activity, while firms under 20 employees in size continue to face the quickening contraction in activity first started six months ago.
For the month, Composites was the best performing technology; it was followed by Metalworking, Moldmaking, Plastics Technology, Production Machining and Finishing. To learn more about the detailed trends occurring in the manufacturing sector visit Gardner’s Business Index website at: https://www.gardnerintelligence.com/report/snapshot, readers can also visit our website blog and social media accounts to read about the latest news in the manufacturing sector.