I saw where the Fastener Distributor Index (FDI) for July slipped dramatically, coming in at 45.9 versus 50.6 in June, seasonally adjusted. Over the last month I have had an opportunity to talk to a lot of people about how their year is going so far. If I had to summarize, I’d say that a good number of fastener companies had sales that were 5-10% lower in 2016 than 2015. That is a generalization, but seems to be a common sentiment. If you are heavy into oil & gas, you might be down 30%.
The weird thing for me is that I really never expected to see such a significant drop in July. Historically, July can be a brutal month due to vacations & summer slowdowns. But based on what I have been hearing, I did not see such a big drop coming.
Everywhere, I hear people say they are doing a lot of quoting. Sometimes that can be because end users are slow and they are out shopping. But, I’m not sure that is the case here. I have had some people say just in the last week or so that they have started to see some orders popping that have been worked on for months. Even one guy in Oil & Gas/Mining told me his customers have really started to pick up in the last several weeks. It would not surprise me to see the FDI have an equally strong rebound in September or October. Don’t bet the farm, but as I said it would not shock me.
At the NFDA meeting in June, Brian Beauliu of ITR Economics said his firm was forecasting that business would pick up in the second half of 2016, regardless of who is elected president. He also said he expects 2017 & 2018 to be much stronger and is more worried about inventory levels and staffing being adequate to handle the upcoming increase in business. I certainly hope he is correct and this would also lead to an increase in the FDI were this to happen.
Sometimes companies are busy, but sales are not strong. Purchasing departments are always busy. If they are buying 1,000,000 pcs. or 1,000 pcs., buyers have to quote and buy and schedule and expedite. Sales forces too should always be busy. Unless you have 100% market share there is always business to go after. And, in both purchasing and sales, you need to work hard to protect the business you have already been blessed with. So, generally people are still working hard, they will just sleep more soundly when sales and margins increase. Let’s hope things do improve sooner than later.
One last thing, following up on my last post, I want to direct you to take a look at the updates Fastener News Desk site. In particular, check out the MFG Day page they have developed:
http://www.fastenernewsdesk.com/mfg-day-2016/
And, please, let them know if your company is going to participate in MFG Day this year. They will get your name on the map and help promote your event.
TS – It stands to reason that weakness at the petroleum producer level is going to hurt industrial distributors in those regions. Long-term low prices also affect those industries centered on developing oil alternatives, making their outlook less certain. In aerospace and defense, the sequester was outflanked by program-specific bills rammed through Congress, but its effect is still overshadowing maintenance and operations on bases worldwide. It’s not just the fastener industry taking a beating, it’s every industry that works within these sectors.
Just as there were consequences when we found we could buy a 50” LCD TV made in China from Walmart for $300.00, so are there consequences when the price of a gallon of gasoline drops by half in three years and the government goes on a spending diet at the same time. Those who have been clamoring for less government spending have gotten their wish. Right now, the government should be finding ways to keep the shale oil producers solvent, just as it has done for corn producers with ethanol subsidies. Right now, the government should be in the process of arming us to the teeth in light of activity that portends more danger for all of us on the international stage. But, let’s keep that spending low and keep cutting those taxes, because who cares that the Federal government is the world’s largest employer and the world’s largest contractor and everyone’s best customer?