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Production expanded for the tenth consecutive month. October Index at 49.4 – First Contraction since December 2013 STEVEN R. KLINE, JR. Market Analyst Gardner Business Media Inc. gardner web.com/economics/blog Production Machining Sub-Indices October September Change Direction Rate Trend New Orders 49.6 52.4 -2.8 Contracting From Growing 1 Production 54.1 52.8 1.3 Growing Faster 10 Backlog 43.3 42.7 0.6 Contracting Slower 2 Employment 51.9 55.6 -3.7 Growing Slower 10 Exports 44.0 45.7 -1.7 Contracting Faster 7 Supplier Deliveries 53.8 55.2 -1.4 Lengthening Less 15 Material Prices 63.4 64.3 -0.9 Increasing Less 27 Prices Received 49.6 50.8 -1.2 Decreasing From Increasing 1 Future Business Expectations 65.7 70.2 -4.5 Improving Less 35 Production Machining Business Index 49.4 50.7 -1.3 Contracting From Growing 1 W ith a reading of 49.4, the Gardner Business Index showed that the production machining industry contracted at a moderate rate for the frst time since December 2013. Compared with 1 year ago, the index fell 1.0 percent. Tis was the frst month-over-month contraction since September 2013. Te annual rate of change continued to grow at a strong rate, but it decelerated for the frst time since it began growing in February. New orders contracted for the frst time since November 2013. Te trend in new orders has steadily declined since January. Production expanded for the tenth consecutive month. Te 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 frst time it had contracted since August 2013. Te annual rate of growth in backlogs is still very strong. Terefore, the trend in backlogs indicates signifcant increases in capacity utilization and capital equipment consumption in 2015. But, capacity utiliza- tion 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. Te 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 signifcantly accel- erating rate earlier this year, the previous 4 months have seen a lower rate of increase. Prices received decreased for the frst time since April. After stabilizing last month, future business expectations dropped signifcantly once again in October. Tey were at their lowest level in October since September 2013. Shops with 50-99 employees expanded at the fastest rate by far in October. Tey have seen strong growth throughout 2014. Facilities with more than 100 employees contracted for the frst 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. Te 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. Te 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. BY THE NUMBERS 26 PRODUCTION MACHINING :: DECEMBER 2014