Gardner Intelligence Blog

In August, the index for production of durable goods was 101.2, which was the highest level for the index since February. Compared with one year ago, the index contracted 8.1%, which was the fourth month in a row that the month-over-month rate of change in the index decelerated and the slowest rate of contraction since February. 

The annual rate of change, which is easier to correlate with other data points, contracted 8.0% this month. This was the sixth consecutive month of accelerating contraction. The key leading indicator of production—durable goods new orders—is starting to bottom out and indicating that production should do the same soon. Also, consumer durable goods spending, which leads durable goods new orders, reached an all-time high in July and appeared to be at a bottom and about to start contracting at a slower rate.

In August, durable goods capacity utilization was 69.4%, which was the fourth month in a row the rate of capacity utilization moved higher. Compared with one year ago, capacity utilization contracted 8.5%, which was the fourth straight month that the month-over-month rate of change contracted at a slower rate and the slowest rate of contraction since February. 

The annual change in durable goods capacity utilization contracted at an accelerating rate for the 10^th month in a row, falling to -9.0% from -8.4%. August was the fastest rate of annual contraction since March 2010. As the annual rate of change tends to lead capital equipment consumption by seven-to-10 months, capacity utilization is signaling accelerating contraction in capital equipment spending through at least the third quarter of 2020.

July machine tool orders were 1,818 units and $321,898,000.

July’s unit orders were the second-highest of 2020. July’s orders contracted 9.5% compared with one year ago, which was the third slowest rate of contraction in the last 12 months. The annual rate of contraction was 20.1%. The rate has contracted for 12 months, accelerating for seven consecutive months. However, the annual rate of contraction was clearly starting to bottom in July.

In August, the monetary base was $4.807 trillion, which was a slight increase from last month. Compared with one year ago, August’s monetary base was up 47.0%.  This was the fifth consecutive month that the month-over-month rate of change was faster than 44%. (In 2009, the monetary base increased more than 100% five times in the first eight months of the year.) This was the ninth month in a row of month-over-month growth. The annual rate of growth accelerated to 20.1% in August, which was the fifth straight month of accelerating growth and the fastest rate of growth since December 2014.

Historically, the annual rate of change in the monetary base leads capital equipment consumption, specifically machine tool orders, by 12-18 months. Although, the lead time between the monetary base and capital equipment consumption shrunk over the last decade. 

In August, the nominal 10-year Treasury rate was 0.65%, which was the second lowest rate ever. And, it was the sixth month in a row and the sixth month ever that the monthly average was below 1%. So, the nominal 10-year Treasury rate was at or hovered near its all-time lows for six straight months.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.81%. This was the eighth consecutive month and 11^th of the last 13 that the real rate was negative. Inflation increased to its highest rate since March.