The seasonally-adjusted Fastener Distributor Index for June dropped to 48.3, contracting more than five points from May’s 53.8 reading, according to R.W. Baird analyst David Manthey.

“Weaker sales trends were the main driver of the contraction,” Manthey writes.

Just 23% of respondents indicated sales were better than seasonal expectations, below both 2018 levels (55%) and the percentage of respondents indicating sales were weaker this month (48%). The pricing index improved month to month, although a majority of respondents still indicated stable pricing levels vs. May.

“Although customer inventory levels are perceived as in line by most respondents, there was a noticeable uptick in those perceiving inventory levels as too high,” Manthey explained.

Respondents’ inventories decreased m/m “to more in-line levels.”

The Forward Looking Index dropped to 44.4, the fifth sub- 50 reading in six months. The employment index, customer inventories, and six-month outlook all weakened sequentially.

“The six-month outlook further retrenched, with respondents still seeing contraction on balance in late 2019,” Manthey wrote.

Hiring sentiment was stable in June as hiring was again “above seasonal expectations for nearly all fastener distributors, consistent with May results.”

However, the tone of qualitative commentary remained cautious. One distributor noted that “RFQ’s are less numerous but the flow of orders has not slowed enough to drop our backlog,” while another commented, “business is softer.”

“Customers are moving existing orders out indicating overloaded inventories and slowing demand.”

Some distributors commented on political uncertainty ahead of the 2020 election as a key risk to the outlook.

“As a result, the six-month outlook was again less optimistic this month, with just 23% of respondents expecting higher activity levels, 32% expecting similar activity, and 45% expecting lower activity,” Manthey writes.

The percentage of respondents expecting lower activity soared vs. the 16% in April, representing the most pessimistic reading since mid-2012.

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