Fastener Distributor Index Hits 14-Month Low as Outlook Grows Continuously Less Rosy

The index is still in expansion territory, but not by much.


FCH Sourcing Network reported its Fastener Distributor Index (FDI) for the month of January on Feb. 6, showing a weaker start to the year and a six-month outlook that continues to decelerate in optimism.

Last month's FDI showed a reading of 52.7, down 3.5 points from December, and the index's lowest mark since September 2020's 52.0. It was still in expansion territory, as any reading above 50.0 indicates market growth, but another deceleration month closer to breakeven.

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 50s since June 2021.

Meanwhile, the index's Forward-Looking-Indicator (FLI) — an average of distributor respondents' expectations for future fastener market conditions — had a fifth-straight decline. January's FLI of 62.8 was a 0.9-point decline from December 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 2021.

Only 33 percent of the FDI's fastener distributor survey respondents indicated they expect higher activity levels over the next six months compared to today, down from 44 percent who said the same in December. 57 percent expect the same activity level, while 10 percent expect higher activity. It's been a major reversal from the first half of 2021, when as many as 72 percent of respondents said they were expecting higher activity.

Overall, the index's latest figures suggest a notably worse month for fastener distributors than December, while forecasted market conditions saw another modest decline in optimism.

"The January seasonally adjusted Fastener Distributor Index (FDI) was slightly softer m/m at 52.7, although modest underlying improvement was seen in most metrics; the seasonal adjustment factor downwardly impacted results as January is normally the strongest month of the year for the index," said R.W. Baird analyst David Manthey, CFA, about the latest FDI readings. "Respondent commentary pointed to customer fatigue amid erratic supplier deliveries and lead times. The Forward-Looking Indicator (FLI) was modestly softer as well, coming in at 62.8, due to higher inventory levels and a less-optimistic six-month outlook. Net, we believe fastener market conditions were mostly stable with December with continued very strong demand partially weighed down by persistent supply chain challenges."

Manthey added, "However, with continued strong demand/backlog and lengthy lead times, we believe this means the FDI could remain in solid growth mode for quite some time."

Of the FDI’s seven factoring indices besides the FLI, five saw month-to-month decreases that dragged on the overall index. Most notably, the volatile sales index fell 11.2 points from December to a mark of 64.5 after two straight months in the mid-70s. Supplier Deliveries fell eight points to 71.7 (14-month low); Respondent Inventories fell 5.2 points to 41.7 (5-month low); Month-to-Month Pricing fell 4.2 points to 81.7 (11-month low); and Year-to-year Pricing fell 1.9 points to 95.0.

Improving in January were Employment, up 0.3 points to 55.0; and Customer Inventories, up 2.7 points to 18.3.

"While most metrics improved, historical seasonality would imply greater improvement would have been expected, which resulted in the overall FDI index cooling further from December’s pace," Manthey said. "Pricing was also a touch softer when compared with December, although perhaps this could be viewed positively as it gives respondents more time to pass on past supplier increases to customers. Demand feedback remains positive (customers are busy), but commentary indicates fatigue/frustration could be settling in amid material shortages, lengthy supplier deliveries and extended lead times."

Manthey also noted that January suggested for the first time that this conundrum could be impacting customer sentiment and/or new project decisions. He shared a couple of anonymous distributor comments from FDI's January survey:

  • “Customers’ schedules remain erratic due to various material shortages. Suppliers’ deliveries and lead times remain an impediment to sales growth and new program start-ups.”
  • “Customers are busy and fatigued. They are having a hard time keeping up.”

"Clearly, some element of fatigue/frustration is settling in among customers," Manthey said. "It bears watching whether this impacts future demand, although to this point it has not."

See the full January FDI table below:


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