The seasonally adjusted Fastener Distributor Index (FDI) saw modest m/m improvement, reading 52.9 in May vs. 51.6 in April, and continued to expand (above neutral reading of 50) driven by supplier deliveries.

“Commentary was again mixed, but our overall read was that demand conditions in May were generally seen as acceptable, not great but not terrible either,” wrote R.W. Baird analyst David Manthey (CFA) with Quinn Fredrickson (CFA). “Overall performance seems to be divergent among participants based on end market exposure.”

May’s Forward-Looking Indicator (FLI) also improved vs. last month and climbed back into expansionary levels, reading 52.8.

“When taken together with other indicators (FAST, May ISM PMI), we believe market conditions in May remained fairly muted.”

The seasonally adjusted FDI moved modestly higher in May to 52.9 (April 51.6). Three of the four underlying components (sales, employment, and customer inventories) decelerated vs. April; only the supplier deliveries index improved by a sizable enough amount to offset the weakening in the other three components.

“While the headline FDI technically improved, our interpretation is that underlying activity was relatively unchanged.”

Looking at the sales index specifically, 36% of respondents indicated sales came in above seasonal expectations – slightly lower vs. 47% last month but generally in line with the 33% average over the past year. 27% indicated sales were below expectations compared to 33% last month, while the remaining 36% said sales matched expectations (vs. 20% in April).

After registering an exactly neutral 50.0 in April, the FLI improved to 52.8 in May.

“Slightly leaner customer inventory levels, slower supplier deliveries, and a more optimistic six-month outlook all combined to drive the m/m acceleration.”

On the outlook specifically, views again leaned net more positive than negative (39% expecting higher activity levels six months from now vs. today compared to 18% lower), but the plurality of respondents continue to see activity sustaining at current levels (42% of responses). In April, 33% expected higher activity, 43% similar, and 23% lower, improving the six-month outlook index to 60.6 from 55.

Feedback on demand across the industrial landscape remains mixed, with one respondent speculating that diverging end market exposure is the driver.

“I have read that many sectors are robust such as electronic components, and many industrial sectors are going through a recession. As an election year, we are performing with single-digit growth. If this is a recessionary time for fasteners, I'll take it.”

Feedback continues to be positive, however, from some participants.

“[I] continue to be surprised by the demand coming in from various industries. Our customers are willing to wait longer for deliveries, while our costs are inching higher.”

Another respondent said, “February and March were slower than expected but we have seen an untick in sales and overall activity since early April.”

Conversely, others who had previously seen strong trends saw a deceleration this month: “After a year of consistent growth, we had poor sales in May. I won't call it a trend yet. If it happens again in June then I will know there is something bad in the brew.”

Many participants are watching the upcoming election with unease, anticipating some slowing ahead.

“As the election grows closer, the sales and buying will slow down. We've seen it every election year and it starts right about May/June so we're due. Once the election takes place, some sense of normalcy will return barring any other factors.”

A recent rise in raw material, ocean freight and labor costs are also seen as a key risk.

“While April numbers barely hung in there, May slowed down compared to the 1st quarter. We expect the May levels to continue through the summer months and then [it’s] anyone's guess. Stainless steel material [is] starting to rise again at the same time. Ocean freight has ticked up. The labor market [is] heating up again with costs increasing, while the number of candidates is shrinking. Overall, [it’s] still better than the good years pre-covid but backward trends never make stakeholders happy.”

Fastenal reported May day sales growth of +1.5% y/y vs. our +2.5% estimate. This was also 1% below what normal seasonality would have implied for the month. Fastener sales, specifically, were -4.1% y/y, softening from April’s -2.2% decline and marking the 14th consecutive month of either flat or declining y/y sales for this product line. Elsewhere, safety sales were +7.5% and other non-fasteners grew +3.0% y/y.

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