Gardner Intelligence Blog

In September, the monetary base was $3.210 trillion, which was the lowest level since May 2013. September was the 19^th consecutive month of month-over-month contraction in the monetary base. The month-over-month contraction of 10.1% broke a string of four consecutive months of decelerating contraction and two straight months that the month-over-month rate of contraction was less than 10%. 

The annual rate of change in the money supply continued to contract at an accelerating rate for the 12^th month in a row, falling to -10.9%. This was the fourth month in a row that the rate of contraction was faster than 10% and the fastest rate of annual contraction in nearly a century. A contracting money supply tends to lead to a contraction in capital equipment spending.

New orders for real durable goods totaled $254,051 million in August, which was down 6.4% from one year ago. Durable goods new orders contracted for the sixth time in seven months, and the rate of month-over-month contraction has accelerated in recent months. The result was that the annual rate of change contracted 1.2%, contracting for the first time since May 2017. 

Compared with one year ago, new orders for motor vehicles and parts contracted 2.6%. That was the first month of month-over-month contraction since May 2018. The annual rate of growth, now 4.4%, decelerated for the second month. This was the slowest rate of annual growth since September 2018

The Gardner Business Index (GBI) finished September at 48.2, marking its third consecutive month of contracting business activity and falling over 16% 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 and production. Backlogs and exports contracted the fastest during the month, pulling down the Index. Employment and new orders readings had little impact on the total index’s calculated result.

For a second month, firms between 100 and 250 employees in size reported the fastest rate of contracting business activity. Between the start of 2017 and mid-2019, firms of this size range frequently reported greater business activity expansion than shops of smaller size classes.  Additionally, those small shops were also the first to begin regularly reporting contracting business activity in late 2018. Despite having been the first to report contracting activity, smaller manufacturers in the year-to-date period have reported the softest rates of contracting activity when compared to their larger peers.

In August, the month-over-month rate of growth for durable goods spending was 5.6%, which was the fastest rate of growth since August 2018. Additionally, it was the fifth month in a row with growth faster than 4.0% and the fourth straight month of accelerating growth. The accelerating rate of growth was likely the result of the falling change in the real 10-year Treasury rate. Because the 10-year rate itself has dropped so low, durable goods spending is making up its largest share of all consumer spending ever. 

However, the annual rate of growth decelerated to 4.2%. This was the slowest annual rate of growth since September 2010, but with the recent month-over-month growth in durable goods spending and the declining year-over-year change in the 10-year Treasury rate , there could be some modest acceleration in the annual rate of growth heading into the fourth quarter.

In August 2019, real disposable income was $15,073 billion, which was its highest level ever by quite a bit. However, the month-over-month rate of growth was 3.0%, which is slower than the historic average, for the second month in a row. Also, it was the slowest rate of growth since April 2017 and the first month. In 2019, the month-over-month rate of growth has been notably slower than it was in 2018.

The annual rate of growth remained decelerated to 3.4%, which was its slowest rate of growth since March 2018. Also, it was down from its peak rate of growth of 4.0% in December 2018. With noticeably slower month-over-month growth since the beginning of the year , it is likely that the annual rate of growth in disposable income will decelerate more in the months ahead.