FDI April 2021

Key Points:

FDI decelerates but demand conditions remain favorable overall. The seasonally adjusted April FDI 58.7 moderated from last month’s robust 66.0 but indicates continued growth in fastener markets (well above neutral 50 reading). About half of respondents saw better than seasonally expected sales, which was significantly lower than the 91% in March and the ~70% December through February. We attribute this to continued shipping delays/container shortages and an inability to source products, which has resulted in many respondents being unable to fulfill all customer orders. These dynamics have also translated into continued price increases; 94% of respondents saw higher point-of-sale pricing y/y and 72% higher m/m.

FLI moderates. The seasonally adjusted FLI was 76.7, decreasing vs. March’s 78.5, although the FLI had set new record highs the previous two months hence some moderation was likely overdue. The main driver of the m/m contraction was the six-month outlook, which was slightly less optimistic than prior months. We believe sentiment is being more directly impacted by supply chain constraints than in prior months when respondents were still navigating these challenges reasonably well. That said, we see a positive outlook for the FDI ahead as customer inventories remain at very low levels, and note an FLI well into the 70’s is consistent with expectations for continued improvement in fastener markets ahead. Even if respondents are not able to meet all demand, distributors seem to be able to meet enough demand to generate good levels of sales growth.

Employment levels unchanged. The FDI employment index came in at 66.7, the third consecutive month in the 66-67 range. Forty-two percent of respondents saw employment levels as above seasonal expectations in April – essentially equal to March’s 41%/February’s 43%. Looking at the broader economy, the March jobs report showed an impressive gain of 916,000 jobs, easily ahead of economist expectations for +675,000, as the leisure and hospitality sectors react to normalizing travel demand. The construction market also added an impressive +110,000 jobs m/m. Unemployment now stands at 6%, although this still reflects nearly 7.9 million fewer jobs vs. pre-pandemic levels. The April jobs report is slated to be released Friday May 7, and economists are expecting another month of very strong additions (consensus expectations are for nearly one million adds).

Supply chain issues starting to have a more direct impact. While port backup, container shortages, and increasing freight rates have been consistent topics of discussion in the FDI the last several months, respondents seemed to be feeling the impacts more directly on their businesses this month. Said one respondent, “We are finally noticing the container shortage and backup at the ports. We assume it is only going to get worse until 2022.” Another commented, “Inventories at all of the Major Master Importers (IE. BBI, Stelfast, XL Screw, Star Stainless, Vertex etc. ) are very low….we are getting parts that we need from all of their branches from all over the country. Margins are going down because of the additional ‘freight in’ charges. We are feeling the pain of all of those ships that are backed in the ports of LA, SanDiego, Seattle etc. ” Several respondents indicated they feel the supply chain is holding back their ability to meet otherwise robust demand: “Stressed supply chain is depressing sales. If our customers could obtain all components they need, they would be building more. Transit markets and material shortage will continue to apply upward pressure on pricing.” Echoing this, another comment said, “There is unprecedented demand combined with supply challenges that our entire industry is trying to navigate.”