Fastener Distributor Index Shows Signs of Life

A month after hitting a record-low, FCH Sourcing Network’s monthly Fastener Distributor Index (FDI) showed notable recovery during May — a welcoming sign for sellers of fastener products that have been hammered by COVID-19 business impacts.

The index for May registered a mark of 45.0, following April’s 40.0 that was the lowest in the FDI’s nine-year history. It was the index’s first month-to-month improvement since February’s 53.0.

For the index — a monthly survey of North American fastener distributors, operated by FCH in partnership with R.W. Baird — any reading above 50.0 indicates expansion, whereas anything below 50.0 indicates contraction.

The FDI’s forward-looking-indicator (FLI) — which measures distributor respondents’ expectations for future fastener market conditions — had a 7.7-point improvement from April to a May reading of 43.9, showing solid improvement from March’s 33.3 lowpoint.

“Several participants commented that business activity seems to have leveled off or improved since April, implying a majority of respondents have perhaps already seen the bottom,” commented R.W. Baird analyst David Manthey, CFA, about the May FDI.

The FDI’s seasonally-adjusted sales index more than doubled from April’s record-low 14.0 to a May reading of 28.9, indicating that selling conditions in May were far better, though still considerably subdued overall compared to readings of 54.9 and 50.0 in February and January, respectively.

Another metric with a considerable gain was employment, jumping from 26.8 in April to 40.0 in May. That followed two straight months where no FDI survey respondents noted higher employment levels compared to seasonal expectations. Meanwhile, Supplier Deliveries saw a 9.3-point decline to 67.5 and month-to-month pricing fell 12.3 points to 47.5.

In other May FDI metrics:

  • Respondent inventories increased 1.7 points from April to 70.0
  • Customer inventories increased 1.2 points to 48.8
  • Year-to-year pricing decreased 5.8 points from April to 61.3

Looking at expected activity levels over the next six months, sentiment turned to an outlook compared to April:

  • 28 percent of respondents expect lower activity over the next six months (54 percent in April, 73 percent in March)
  • 43 percent expect higher activity (34 in April, 16 percent in March)
  • 30 percent expect similar activity (12 percent in April, March 11 percent)

Baird shared that FDI respondent commentary reflected stabilizing, if not improving conditions during May. Respondent quotes included the following:

  • “Business activity seems to be improving already. Sales in May were not great, but definitely better. It seems like we are off the bottom and moving in the right direction.” 
  • “Regarding revenue, April was down 11.25 percent month/month and our May figures flattened with the exact sales as April, so at least the bleeding has stopped.”

Other interesting supplemental questions the FDI proposed:

  • The FDI asked respondents what they expect the US economic recovery to look like, between a “V”-shape (fast bounce-back), “U”-shape (staying down a while longer before rebounding), “W”-shape (very choppy) or “L” (no bounce-back in 2020). Zero respondents picked a V-shape; U-shape and W-shape each had 46 percent of respondents; while 8 percent expect an L-shaped recovery.
  • The FDI also asked distributor respondents how much of a change to their operations they are expecting post-virus. 74 percent expect only minor changes; 8 percent expect significant changes and 18 percent expect no significant changes.
  • Lastly, the FDI asked what headcount changes fastener distributors expect going forward. 50 percent expect headcount to stay the same; 34 percent expect it to modestly decline and only 3 percent expect headcount to sharply decline; while 13 percent expect to grow headcount.

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