Gardner Intelligence Blog

Trend in 10-Year Treasury Positive Sign for Manufacturing

The nominal 10-year Treasury rate declined for the fifth month in a row, dropping to 2.57 percent from a high of 3.15 percent in October 2018. This was the lowest nominal rate since December 2017. The nominal 10-year Treasury rate is just above the Fed Funds Rate, which is overnight lending rate. It is quite unusual for the two rates to be so close together, indicating one of the two is “wrong.”

At the same time, the annual rate of inflation according to the CPI ticked up slightly from the previous two months. In March, the annual CPI was 1.86 percent, which was down significantly from its high of 2.95 percent in July 2018. The result was a real 10-year Treasury rate of 27 basis points, which was the lowest real rate since November 2017.

Cutting Tool Orders Grow for 22nd Straight Month

In February, cutting-tool orders were $205.6 million, which was the 11th time in 12 months that orders were more than $200 million. February orders increased 4.7 percent compared with one year ago, growing for the 22nd month in a row. February’s order total kept the annual rate of growth above 10 percent for the fifth time in six months. 

 Further, the GBI: Metalworking is a good leading indicator of cutting-tool orders. The rate of change in the index began contracting in March. The Index is clearly indicating that slower growth is ahead for cutting tool orders. The GBI typically leads cutting tool orders by seven-to-10 months.

Monetary Base Slows Contraction

March was the 13th consecutive month of month-over-month contraction in the monetary base, which was $3.396 trillion. The rate of contraction has accelerated almost every one of these 12 months, but March’s contraction decelerated to -11.0 from -13.0 percent. This was the slowest rate of contraction since October 2018. Yet, it was still the fifth month in a row that the one-month rate of change in the money supply contracted more than 10 percent.

As a result, the annual rate of change in the money supply contracted for the sixth month in a row, accelerating to -8.1 percent. This was the fastest rate of annual contraction since March 1938. The money supply is indicating that the current decelerating growth in machine tool orders will continue for some time.

February Sees 89,700 Housing Permits Filed

There were 89,700 housing permits filed in February 2019. This was the fewest permits and the first month with fewer than 90,000 permits since February 2017. February’s permits contracted 2.6 percent compared with one year ago, contracting for the second month in a row. 

In February, the year-over-year change in the 10-year Treasury rate was -47 basis points, which was the second straight month the change was below zero and the lowest change since January 2018. It’s quite possible that the change in the 10-year Treasury rate has reversed course and is now a positive leading indicator for manufacturing, durable goods and capital equipment. 

New orders for real durable goods in February totaled $235,236 million. Compared with one year ago, new orders contracted 2.1 percent, which was the first month of contraction since June 2018 and the second since April 2017. The annual rate of growth decelerated for the fourth month in a row, moving from 5.5 to 4.5 percent. This was the slowest rate of annual growth since December 2017.

New orders for motor vehicles and parts remained relatively robust, growing 4.8 percent in February compared with one year ago. The annual rate of growth was unchanged at 6.0 percent. 

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