Gardner Intelligence Blog

The Gardner Business Index (GBI) moved lower in May, issuing a reading of 58.2.  Compared to the same month one year ago, the GBI is up 3.9 percent, indicating that economic and business conditions in manufacturing continue to be better than average.  Gardner Intelligence’s review of the underlying data for the month indicates that the Index was driven higher by supplier deliveries, production, employment, and new orders.  The components which lowered the index’s average-based calculation included backlog, and exports.  All index components expanded during the month, as the exports reading moved above 50.0 – with 50 indicating no change – after contracting (reading below 50.0) in April.

While supplier deliveries repeated its record-setting high from April, both it and employment are considered lagging measures relative to new orders and production.  As the new orders measure drives changes in production, changes in production drive later changes in supplier deliveries and employment.  After new orders and production experienced exceptional rates of growth during the first quarter of 2018, the index is now experiencing new highs in supplier deliveries and employment, consistent with Gardner Intelligence economic theories on the manufacturing business cycle.

The aviation market has been doing exceedingly well during the current market cycle, led by a nine-percent growth in air freight in 2017, while passenger growth reached a multi-year record according to recent data from the International Air Traffic Association (IATA). Overall, air transport demand grew at more than twice the rate of global economic trade in 2017. With the International Monetary Fund’s (IMF) World Economic Outlook Report released in April 2018 projecting world-wide economic growth of 3.9 percent in 2018 and 2019, air transportation is likely to enjoy additional years of robust growth. This strong international growth has been a boon for both the passenger and freight markets, though IATA data show that the freight side of the market is and has been the largest driver of growth in the aerospace industry.

According to IATA’s data, global air freight in February 2018 was up a seasonally adjusted 7.7 percent in freight tonne kilometers compared to a year ago, and capacity during that period grew by 5.6 percent. Moreover, the underlying data indicates that the nature of the air-freight market has been transforming thanks to non-scheduled freight traffic – the chartered use of the whole aircraft for on-demand service to any location. In the nearly 20 years between 1996 and 2017, non-scheduled air-freight traffic grew from 40 to 60 percent of all air-freight traffic. Much of the recent growth in this traffic is a result of the growth of e-commerce and international trade, which will continue to be a major source of demand for air freight, propelling its growth in the market. Based on IATA’s own data analysis, freight-capacity growth in 2017 was frequently outpaced by a factor of two to three since 2017.

(Positive) There were 118,600 housing permits filed in April 2018. This was the highest number of permits since June 2017 and the second highest since June 2015. Compared with one year ago, housing permits increased 15.6 percent, which was the the fastest rate of growth since June 2015. The annual rate of growth accelerated 7.3 percent, which was the fastest rate of growth since May 2016. There may be slightly faster growth ahead for a couple more months.

The 10-year Treasury rate is an excellent leading indicator for housing permits. The year-over-year change in the real rate, 21 basis points, increased for the first time since April 2016. An increasing year-over-year change in the real 10-year Treasury rate is negative for housing permits as homes become relatively more expensive.

(Negative) The real 10-year treasury rate was 0.80 percent in April, which was essentially unchanged from the previous two months. April was the 15^th consecutive month the real rate was below 1.00 percent. Despite the nominal rate reaching its highest level since December 2013, the annual inflation rate in April was the highest since February 2017, which helped keep the real 10-year Treasury rate down. 

The year-over-year change in the real rate, 21 basis points, was positive for the first time since April 2016. An increasing year-over-year change in the real 10-year Treasury rate is negative for consumer durable goods spending as those goods become relatively less expensive.

(Positive) The durable goods industrial production index was 107.3 in April 2018, which was the second highest level ever behind June 2014. April’s index increased 4.0 percent compared with one year ago. This was the fastest rate of growth since July 2014 and the the sixth time in eight months of faster than 2.0 percent growth. The annual rate of growth has been accelerating since June 2017. Accelerating growth in real durable goods new orders is pointing to even faster growth in durable goods production, which is all very positive for capital equipment orders.

We track industrial production and its leading indicators for a number of industries.