May GBI: 57.0

Registering 57.0 this month, the Gardner Business Index recorded its highest value yet in 2017, a value which has not been surpassed in more than five years. Several of the index’s components have been driving the growth of the overall index this year including Production, New Orders, and Employment.

The Production component of the Business Index this month recorded a value of 61.8, which paces with the strong numbers reported during the first quarter of 2017 when the index averaged just under 62. Overall the Production component responses year-to-date in 2017 are significantly better than they have been in at least the last five years. By comparison, in the first five months of 2016 the Production component averaged only 47.7. Comparing these five-month figures, that represents an increase of over 29 percent.

The New Order component of the Business Index also jumped back in line with the results observed in the first quarter of 2017, recording a value of 60.8. This is the second-highest New Orders index value recorded in the last five years, beat only by the New Order value reported in March of this year. Similar to the Production component of the index, the New Orders during the first five-months of 2017 grew by over 23% when compared to the same five-month period one year ago.

The Exports and Material Prices components of the Business Index are dampening additional growth in the Index. The Exports component this month hit 50, the first time it has been at or above 50 since 2014. The Gardner Business Intelligence team will be watching currency markets very closely in 2017 for a multitude of reasons including the progression of Brexit, America’s changing stance on free-trade and trade agreements and the government’s involvement to make markets fairer for American companies. Any and all of these political factors could generate unexpected shocks to currencies and thus import and export dynamics and volumes.

The Material Prices component of the Business Index continue to show that the cost of manufacturing is broadly increasing, yet our data suggests that manufacturers are not passing along these price increases to the same extent. Using a 12/12 rate of change calculation ending May 2017, the Material Prices component has increased by 30% while the Prices Received component has increased by less than 7%. This significant gap in addition to the movement seen in other Index components may be signaling that machine tool prices are primed to rise.

Gardner’s view of the future for the durable goods manufacturing industry is bright, a recent study by the Congressional Budget Office indicated that between 20 and 40 percent of future GDP growth in the U.S. will come from workforce growth with the remaining 60 to 80 percent of growth coming from productivity growth. This productivity growth will result from better, smarter, and more capable machines, computers and other tools that enhance the abilities and productivity of workers. As increasing wages and a limited labor supply being to make themselves felt in the economy, machinery consumers should consider working closely with their suppliers to find ways to use new machine technologies and capabilities to meet their growth objectives.

The fastest growing industries were  industrial motors/hydraulic/mechanical components, hardware, power generation, aerospace, primary metals, metalcutting job shops, electronics/computers/telecommunications, medical, automotive, custom processors, forming/fabricating (non-auto), construction machinery, plastics/rubber products, machinery/equipment and pumps/valves/plumbing products. All other industries contracted.

In addition to the overall durable goods index, we compute indices for several technologies or processes. In May, moldmaking was the fastest growing technology. It was followed by, metalworking, plastics, precision machining, composites, and finishing.