Gardner Intelligence Blog

There were 110,100 housing permits filed in June 2019. This was the fourth consecutive month with more than 105,000 permits filed. However, permits contracted 9.5% month-over-month, which makes six-straight months of month-over-month contraction. As a result, the annual rate of change contracted at an accelerating rate for the second month in a row, falling to 1.4%. That’s the fastest rate of contraction in housing permits since September 2011.

That said, the 10-year Treasury rate is indicating that the direction of housing permits may turn around in 2019. In June, the year-over-year change in the real 10-year Treasury rate was -0.66%, which was the eighth consecutive month the change declined and the sixth-straight month the change was below zero. June’s change in the rate was the lowest since December 2017.

In June, the index for production of durable goods was at 111.4, which was its highest level ever. The index increased 1.4% compared with one year ago, extending its growth streak to 31 months. However, the growth rate has slowed in recent months, falling below the historical average for the last five months. 

However, the annual rate of growth, which is easier to correlate with other data points, decelerated to 2.9%, down from 3.0% last month. This growth was slower than the peak annual growth of 3.5% in February, and it was the slowest rate of growth since July 2018. The annual rate of growth is likely to decelerate even more as the month-over-month rate of growth has been relatively weak the last five months. Further, the key leading indicator of production – durable goods new orders – is indicating slower growth in industrial production.

In June, durable goods capacity utilization was 75.8%. While this was the highest rate of utilization in three months, June was down 0.1% compared with one year ago, and it was the second time in three months that the month-over-month rate of change contracted.

Annual growth in durable-goods capacity utilization decelerated to 2.0% from 2.2% last month. That is down from its peak of 2.8% in January and its slowest rate of growth since June 2018. As the annual rate of growth tends to lead capital equipment consumption by seven-to-10 months, it is signaling that capital equipment consumption will peak later this fall. However, as machine tool orders have already peaked, capacity utilization is signaling slower growth – if not contraction – for the remainder of 2019.

In June, the nominal 10-year Treasury rate declined for the eighth month in a row, dropping to 2.07% from a high of 3.15% in October 2018. This was the lowest nominal rate since October 2016. For the month of June, the nominal 10-year Treasury rate averaged 0.31% less than the Fed Funds Rate, which is the overnight lending rate. This is extremely unusual, and it indicates that the market believes a recession is ahead. 

The annual rate of inflation according to the CPI dropped below 2.00% for the sixth time in seven months. As a result, the real 10-year Treasury rate was -0.01%, which was the lowest real rate since January 2013 and the last time the real rate was negative.

The Gardner Business Index (GBI) sustained the same growth rate as recorded in the prior month with a reading of 50.8. The Index has fallen 6.2% from the same month one year ago. Index readings above 50 indicate expanding activity while values below 50 indicate contracting activity. The further away a reading is from 50 the greater the magnitude of activity change. Gardner Intelligence’s review of the underlying data for the month observed that the Index – calculated as an average of its components – was supported by supplier deliveries, production, employment and new orders. Exports and backlogs both contracted during the month, pulling the Index lower. Backlog activity in June contracted for another month as production activity grew relatively faster than new orders.

Data from recent months has indicated several trends. First, supplier deliveries activity has shadowed production levels very closely throughout 2019. This activity implies that the upstream market has done a commendable job of moderating production since early 2018 when manufacturers reported experiencing strong new orders growth and stressed supply chains to increase capacity.