Source: Baird, FCH Sourcing Network, company reports

The seasonally adjusted Fastener Distributor Index retreated for the second straight month, declining to 56.5 in December after its November 58.2 reading, “consistent with a deceleration in the FLI last month to the lowest reading recorded in two years,” according to R.W. Baird analyst David Manthey.

Sales trends improved, with 42% of respondents indicating sales were “better” relative to seasonal expectations vs. 34% of respondents the previous month.

“Nevertheless, this was still noticeably below the average number of respondents who indicated sales were better than expected this year (55%),” Manthey writes.

The resulting sales index was 58.1 compared to 51.8 in November.

“Pricing continues to aid top-line trends, with 84% seeing pricing gains y/y (unchanged vs. November),” according to Manthey.

The resulting FDI pricing index of 91.8 was “relatively consistent.”

A 74% majority of respondents view customer inventory levels as in line with expectations, while 19% believe customers’ inventories are too low. This compares to 84% in line and 11% too low last month.

The Forward-Looking Indicator (FLI) saw a modest uptick in December, with a reading of 54.1 after its 52.5 score in November, which was a two-year low.

“This reflected modest gains across all four FLI components (employment, respondent inventories, customer inventories, and the six-month outlook),” Manthey writes. “As such, while the FLI suggests market conditions are likely to remain in growth mode, we continue to believe stabilization or further moderation from here remains more likely than acceleration.”

Hiring sentiment was more bullish, with 32% of respondents reporting higher employment levels in December vs. 29% in November, while 68% saw employment as in line (November 71%). The resulting FDI Employment Index was 66.1 vs. 64.5 last month.

“Commentary was roughly evenly split between bulls and bears this month, as some characterized December trends as better than or in line with expectations, while others focused on signs that additional slowing may be in store in 2019.”

One respondent commented: “Sales were down for December and our backlog is now down too, but I expect that to be a temporary seasonal situation based on the unaffected number of RFQ’s flowing through our hands.”

Another participant said: “December was down from November but that’s typical for that time of year… Expecting great things for 2019.”

Others were less optimistic.

“Mixed signals out there seems to [indicate] slow growth for 2019,” and “I think the first quarter will closely match last year, then be down y/y for each month the rest of the year.”

Manthey said the six-month outlook “continues to point to stable to higher activity levels anticipated by fastener distributors over the next six months, with 35% of respondents expecting higher activity levels, 48% expecting similar activity, and just 16% expecting lower activity.”

The FDI is a monthly survey of North American fastener distributors conducted by the FCH Sourcing Network, the National Fastener Distributors Association, and Baird. Web: fdisurvey.com