Gardner Intelligence Blog

In June, real consumer durable goods spending was $1,986,298 million, which was an all-time high. The month-over-month rate of growth for durable goods spending was 11.7%, which was the fastest rate of growth since July 2005. 

The annual rate of growth accelerated for the first time since February. The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.84%. This was the sixth consecutive month and ninth of the last 11 that the real rate was negative. So far, lower interest rates have been enough to overcome lower incomes and boost durable goods spending. The question is will that continue without a significant increase in employment?

In June, real disposable income was $16,028 billion, which was 8.1% more than one year ago. While this was the third consecutive month (and the only three months ever) with income more than $16,000 billion, June income was down almost $1,000 billion from April. The 8.1% growth rate in June was more than 2.5 times the historic average month-over-month growth rate in real disposable income.

The extreme month-over-month rate of growth in disposable income is a direct result of government payments to individuals. Compensation from employees contracted more than 2.3% each of the last three months, which were the first months of contraction since January 2010. At the same time, government transfer payments (e.g. unemployment benefits, $1,200 stimulus checks) increased at least 58.1% each of the last three months. As a result, government transfer payments made up more than 25% of all U.S. disposable income for the third straight month.

The Gardner Business Index at 47.6 registered a third month of slowing contraction for July. Rising readings below a level of 50 indicate a slowing rate of contracting business activity. This occurs when there is a decline in the proportion of manufacturers reporting worsening conditions relative to the prior month.  Of the six components which constitute the Index, only supplier deliveries registered above 50.  As explained previously in detail, the recent elevation in supplier delivery readings is a result of disrupted supply chains rather than the result of economic growth.  All other components registered slowing contraction led in absolute terms by new orders (up 4-points) and followed by production (up 3-points).  The reading for export activity also increased in July by nearly 4-points.  As domestic and international demand continue to show signs of improvement, other measures of business activity can be expected to improve in the coming months.  Historically, production lags new orders by one month while backlogs and employment activity lag new orders by two or more months.

All geographic regions of the U.S. reported slowing contraction for the month with the Northeast reporting the least level of economic contraction and the Southeast reporting the greatest.  The North Central East region comprising of Indiana, Kentucky, Michigan, Ohio and Tennessee reported the greatest change in activity during July with a 5-point gain.

There were 124,000 housing permits filed in June 2020. Permits filed in June were up 11.7% compared with one year ago, returning to double-digit growth after two months of contraction. The growth is likely a result of people moving from cities to suburbs as a result of the pandemic. In June, the annual rate of growth accelerated to 6.2%, which made it the 10^th-straight month of growth. It was the second-fastest rate of annual growth since July 2018.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.84%. This was the sixth consecutive month and ninth of the last 11 that the real rate was negative. Inflation was relatively low from April to June compared with the previous four years. However, inflation did pick up significantly in June.

In June, durable goods capacity utilization was 64.3%, which was the second month in a row the rate of capacity utilization moved higher. Compared with one year ago, capacity utilization contracted 15.1%, which was the second straight month that the month-over-month rate of change contracted at a slower rate. 

The annual change in durable goods capacity utilization contracted at an accelerating rate for the eighth month in a row, falling to -7.7% from -6.4%. June was the fastest rate of annual contraction since April 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 and likely through the remainder of the year.