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SUMMER 2012

Distributor's Link Magazine Summer Issue 2012 / VOL 35 / NO.3

70 THE DISTRIBUTOR’S

70 THE DISTRIBUTOR’S LINK FDI STILL SOLID, BUT SLOWER THAN Q1 The Fastener Distributor Index (FDI) is a monthly survey of North American fastener distributors conducted in partnership with the FCH Sourcing Network, www.fastenersclearinghouse.com, and BB&T Capital Markets, which provides insight into current trends and outlooks. As a diffusion index, readings above 50 signal strength and below 50 signal weakness. April's FDI was 53.8, versus 55.9 in March. This was a good start to Q2'12, but not as good as Q1'12. In Q1'12 the index averaged 56.4, so April's reading suggests more tepid growth to begin Q2'12. It is also notable that the FDI underperformed versus the national manufacturing index (PMI). Sales hurt, slipping from the mid- to high-60s in Feb./Mar. to 55.1. Other elements, though, supported a still healthy view, specifically slower Supplier Deliveries (59.0 in April, vs. 51.2 average in Q1'12) and Customer Inventories (42.3 in April) that are still viewed by distributors as too low. Most end markets and geographies did not diverge much from the broad trend, though construction, electronics and the Northeast looked a little softer. Why April was not so robust is hard to say. Maybe direct shipping is accelerating as project/capital spending ramps (thus, a divergence between FDI and PMI). Perhaps Q1'12 had some demand pull forward. The outlook is still the strongest component, but a poor trend has to be acknowledged . 61.5% of respondents expect activity to be higher in six months; just 10.3% said lower. This is a good reading, but one cannot ignore that the spread has narrowed over the last four months. Respondents feel good about things, but not as good as they did to start the year. Price is still mildly favorable, not obviously trending. Year-to-year, point-of-sale pricing is up (48.7% of respondents) or flattish (43.6%); rate of change backed up a bit. We may be seeing past increases anniversarying at a faster rate than new hikes impact. Sequential pricing is still mildly favorable, but did not pick up versus March's glimmer of optimism. The supplemental question for April asked what markets companies see suited to invest in. Respondents seem attracted to the flame. We asked distributors inclined to invest in new markets what ones they thought merited investment. Most mentioned: General Industrial/Job Shops (20.3% of responses). This is not aggressive, as Industrial is where most firms already play suggesting a low-risk effort to target tangential spots within already known areas. The next three industrial markets most often mentioned were Automotive (15.6%), Oil/Gas (9.4%) and Metal/Mining (7.8%), all clearly exciting markets, in our view. High margin electronics also were targeted (10.9%). It would seem these are the markets where competition could escalate. All Link readers who are fastener distributors are welcome to participate in the monthly FDI survey, which asks just a few multiple choice questions in an online survey that can be completed in moments. Go to www.fdisurvey.com to request a user ID, or contact Eric Dudas of FCH at 877-332-7836.

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