Gardner Intelligence Blog

Machine Tool Orders End 2017 on a High Note

In December, machine tool orders were 2,737 units and $432,930,000.

The 2,737 units were the most units ordered in a month since September 2016, which included IMTS. Not including months with IMTS, December’s unit order total was the highest since September 2011. However, December 2017 was just 3.4 percent higher than one year ago. This was the slowest rate of growth since March 2017. But, the annual rate of change accelerated to 8.5 percent, which was its fastest rate of growth since August 2017. Based on the strong accelerating growth in the GBI in 2017, machine tool orders should see accelerating growth for most of 2018.

Money Supply Signals Increased Capital Spending

(Positive) In January 2018, the monetary base was $3.841 trillion. This was the lowest level for the monetary base since July 2017. However, compared with one year ago, the monetary base increased 6.4 percent, which was the seventh month in a row of. The annual rate of growth accelerated for the second month after 21 months of contraction. In January, the annual rate of growth was 2.2 percent, which was the fastest rate of annual growth since August 2015.

Typically, accelerating growth in the monetary base leads to accelerating growth in capital equipment spending, particularly machine tool orders. The lag time is usually quite long, anywhere from 18 to 30 months as seen on the attached chart. While the correlation on the chart is open to interpretation, I think the accelerating growth in the monetary base in 2013 and 2014 is driving accelerating growth in machine tool orders in 2017 and will continue to do so into 2018. This is likely to result in slowing growth and/or contraction in machine in tool orders in 2019 and maybe early 2020. Or, perhaps the recent accelerating growth in the monetary base keeps capital spending growing longer than the normal cycle time would indicate.

Durable Goods Orders Strongest Since June '17

(Positive) Real durable goods new orders in December 2017 were $253,518 million. This was the highest level of orders since June 2017 and the second highest since June 2015. June typically has an high order total because of the large European airshow. Outside of June, December’s order total was the highest since September 2014.

Compared with one year ago, durable goods new orders grew 8.9 percent, which was the seventh straight month of growth and the 11th in the last 12. This was the fastest rate of month-over-month growth since June 2017. The annual rate of growth was 4.8 percent, accelerating for the seventh month to its fastest rate since August 2014. 

January GBI: 57.8

The Gardner Business Index (GBI) continued into 2018 on the same upward trajectory that it followed during the last quarter of 2017. Compared to the same month one year ago, the index is up 5.9 percent.  Gardner Intelligence’s review of the underlying data indicates that the index during January was driven higher by new orders and production, both of which increased significantly over the prior month’s already elevated levels.  Measures of supplier deliveries and employment by historical standards also registered very strong results for the month while backlog and exports pulled the index lower.  None of the six components of the index contracted in the month.

New orders and production both registered markedly higher readings to start off the new year.   As reported in December, when the expansion of new orders exceeds that of production, this tends to precede periods of strong growth in the total index and by extension the manufacturing industry.  As would be expected, the faster expansion of new orders as compared to production resulted in an increase of the backlog component of the index.

It is difficult to directly measure data on packaging and containers because of the permeation of packaging and containers products in everyday consumer activities and because of the permeation of those products along many—if not most—supply chains in a multitude of industries. Therefore, Gardner Intelligence has built customized tools that collect and analyze the quarterly business results of publicly-traded firms in the plastics and containers industry to provide those serving this industry with more up-to-date information.

In examining the financial data of publicly traded U.S. packaging and container manufacturers of plastic and rubber products, it is apparent that revenues for the group grew 7.1 percent between the third quarter of 2016 (3Q2016) and the third quarter of 2017 (3Q2017). Appending Wall Street estimates to this historical data, revenues are expected to increase 2.6 percent and 6.1 percent respectively for the 12-month periods ending in 3Q2018 and in 3Q2019. Taking an extended look at inflation-adjusted (or “real”) historical and forecasted revenues for the period from 2000 to 2020, one will see that the growth rate of real revenues increased around 2012 and is projected to continue to grow at that faster rate through at least early 2019. Forecasted financial values are natively reported in nominal terms. All metrics that are defined in ‘real’ terms have been adjusted to 2015-dollar terms. Gardner Intelligence applies a 2.5-percent annual deflator to forecasted values to more accurately blend inflation-adjusted historical and forecasted figures.

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World Machine Tool Survey

An independent annual survey that collects statistics from machine tool consuming and producing countries and compares them in real U.S. dollars.

Gardner Business Index

A diffusion index measuring month-to-month changes in activity at durable goods and discrete parts manufacturing facilities.

Capital Spending Survey

An annual survey that collects statistics regarding budgeted spending on machine tools, testing equipment, software and more that are then projected across the metalworking industry based on plant size.