Fastener Distributor Index Slows in December as Hiring, Inventories Slide

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FCH Sourcing Network reported its Fastener Distributor Index (FDI) for the month of December on Jan. 6, which showed a weaker month to end the year amid industry-wise labor and supply chain issues after two straight months of index improvement.

Last month's FDI showed a reading of 56.2, down 1.4 percentage points from November. That's still in solid expansion territory, as any reading above 50.0 indicates market growth, but a deceleration from a month earlier. December was 2.0 points above the FDI's 12-month low seen in September.

The FDI has been in expansion territory each month since September 2020, most recently peaking at 61.8 this past May and has held in the mid-50s for the past four months.

Meanwhile, the index's Forward-Looking-Indicator (FLI) — an average of distributor respondents' expectations for future fastener market conditions — had a decline for a fourth straight month. December's FLI of 63.7 was a modest 0.3-point decline from November and remains a stark decline from the readings above 70 seen in the spring and summer of 2021. It has been in the 60s since September.

44% of the FDI's survey respondents indicated they expect higher activity levels over the next six months compared to today, up from 36% who said so in November.

Overall, the index's latest figures suggest a slightly worse month for fastener distributors than November, while forecasted market conditions gained in optimism.

"Overall, market conditions were mildly softer in December as tight labor markets and supply chain challenges combined to make it tougher for respondents to meet demand, which continues to remain strong," noted R.W. Baird analyst David Manthey, CFA, about the latest FDI readings.

Of the FDI’s seven factoring indices besides the FLI, three saw month-to-month decreases that dragged on the overall index. The volatile sales index slid 0.9 points in December to 75.7 after jumping 18.1 points in November. The Employment index had the biggest one-month change, falling 8.9 points to 54.7. Respondent (distributor) Inventories fell 6.1 points to 46.9 into contraction territory.

Improving in December were Supplier Deliveries, up 0.9 points; Customer Inventories, up 0.4 points to 15.6; Month-to-Month Pricing, up 2.6 points to 85.9; and Year-to-year Pricing, up 1.4 points to 96.9.

"Pricing accelerated slightly vs. November due to continued escalation in freight costs and product shortages," Manthey said. "By all accounts, demand continued at a strong pace in December, with multiple respondents noting unusually strong seasonal sales results for the month of December. However, inflationary pressures and supply chain challenges continue to weigh on margins and respondents’ sentiments, thereby weighing down the overall index."

Manthey added that FDI participants' top cited concerns continue to be 1) supply chain, and 2) inflationary cost pressures.

Here’s a sample of anonymous distributor comments from the FDI's December survey:

  • “Still uncertainty as to production in the industry. Supply chain delays and now Covid exposures are causing more production delays.”
  • “Cost increases/margin erosion continues to weigh on the company and our customers.”
  • “Freight costs are out of control. Inflation is rampant in spite of what the government thinks.” 
  • “This past December was our best one on record. Sales and quoting never slowed down between Christmas and New Year's.”
  • “December is typically slower than the rest of year but still was elevated compared to historic numbers.”

See the full December FDI table below:

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