R.W. Baird and FCH Sourcing Network released their monthly Fastener Distributor Index (FDI) for July on Tuesday, showing a second-straight month-over-month surge, while distributor commentary indicates concern over a looming market slowdown in the wake of tariffs.
The seasonally-adjusted July FDI showed a mark of 69.2, up 6.9 percentage points from June and up a whopping 14.1 points year-over-year. The index has jumped 12.8 points from the start of May following declines in five of the previous seven months. FDI's seasonally-adjusted sales index soared 15.4 points from June to a July mark of 89.6, topping July 2017's 86.6 as a new record.
For all indexes, any reading above 50 indicates expansion, while any reading below 50 indicates contraction. July's reading indicates more strong expansion for fastener distributors, and at a notable continued accelerated pace compared to previous recent months.
The FDI's Forward-Looking-Indicator — aimed to provide a directional perspective on future expectations for fastener market conditions — conversely fell 0.9 points in July to 60.1 after reaching a five-month high of 62.0 in June. "While a 60.1 reading suggests market conditions are likely to remain in growth mode, we would not be surprised to see a moderation in the FDI from here, particularly given the strength of July results," R.W. Baird analyst David J. Manthey said.
According to the FDI, 68 percent of respondents indicated sales were better relative to seasonal expectations, compared to 59 percent in June and 54 percent in May.
Looking at other FDI metrics in July:
- Employment index decreased to 64.7 from 68.5 in June
- Supplier Deliveries index increased to 83.8 from 77.8 in June
- Month-to-Month Pricing index dipped to 82.4 from 83.3 in June
- Year-to-Year Pricing index dipped to 89.7 from 90.7 in June
- Respondent Inventories index increased to 55.9 from 50.0 in June
- Customer Inventories index increased to 39.7 from 33.3 in June
The FDI report gave the following analysis of commentary from survey respondents:
The overall tone of qualitative commentary was more cautious this month, with respondents expressing some concerns over inventory implications for the channel in light of tariffs, and a potential slowdown in activity. Specifically, one respondent indicated, “We are noticing that master distributor inventories are somewhat lower and out of stock on some sizes. We are under the impression that some larger fastener distributors are ‘hoarding’ sizes of parts to avoid the additional tariffs that are coming up.” Another distributor expressed concern over a potential looming slowdown in activity, saying “Industry economists forecast a slow down late in the year and I feel that will be [in] Q4.” Quantitatively, survey data continues to point to relatively stable momentum expected through 2018, with 47 percent of respondents expecting higher activity levels over the next six months and 32 percent expecting similar activity, although the percentage of respondents expecting higher activity has moderated substantially YTD vs. the 76 percent recorded in January.
See the full FDI July table below: