Gardner Intelligence Blog

Manufacturer’s Report Slowing Expansion in November

Following a nearly 2-year high reading in October, the results of the Gardner Business Index for November fell nearly 3-points to 51.0, signaling slowing expansion in the manufacturing sector.  All six of the components which constitute the Index moved lower.  The decline in new orders, production and backlogs activity readings accounted for most of the decline in the overall index and yet despite the sizable fall in these readings, new orders and production still reported expanding activity. Employment activity contracted for the first time since August while backlogs and exports reported worsening activity contractions.

There were 132,900 housing permits filed in October 2020, which was the third month in the last four with more than 130,000 permits filed. That has not happened since March to June 2007. COVID-19, work-from-home policies and extremely low mortgage rates have created a demand for new homes in the suburbs at the highest rate since the housing bubble burst and the Great Recession followed.

Permits filed in October increased 0.9% compared with one year ago. Housing permits grew four out of the last months and 13 of the last 16 months. In October, the annual rate of growth decelerated to 4.7%. September was the 14^th-straight month of growth and the seventh in the last nine with growth faster than 5.0%.

In October, real disposable income was $15,682 billion. This was the lowest level of income since the start of the pandemic. Although, income was still 5.0% higher than one year ago because some COVID-related benefits were still in place. However, the month-over-month rate of growth was the slowest since the start of the pandemic. 

The annual rate of growth accelerated to 5.8%. This was the fastest rate of annual growth since December 1998. Normally, this kind of acceleration would lead to a dramatic increase in consumer spending. While the increased government transfer payments may have helped support consumer spending in the near term, consumer spending has “crashed,” contracting at its fastest rate in more than 40 years. The question is what happens to consumer spending when the stimulus ends?

In October, real consumer durable goods spending was $2,066.5 billion, which is an all-time high for the fifth consecutive month. The month-over-month rate of growth for durable goods spending was 14.7%, which was the fastest rate of month-over-month growth since February 2004. Also, it was the fifth straight month with faster than 11% growth, which was the first time that has happened since the summer of 1999 in the middle of the dot com bubble.

The annual rate of growth accelerated for the fifth straight month to 5.6%. The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.60%. This was the 10^th consecutive month and 13^th of the last 15 that the real rate was negative. However, the rate was grinding slowly higher since April.  So far, lower interest rates, combined with increased government transfer payments and the stock market near all-time highs, have been enough to significantly boost durable goods spending. In fact, durable goods spending is 15.8% of total consumer spending, which is its highest percentage of all consumer spending ever. The question is, will that continue when government transfer payments run out?

When most people think about the forefront of the international trade of manufactured goods between U.S. and China, it is usually high-value and patent-protected goods that come to the top-of-mind.  Rarely, if ever, might one think that the humble twist tie would be at the center of a paradigm shift in the world of international trade.  Yet that has been exactly the situation during 2020 with the U.S. Commerce Department through the International Trade Administration granting Bedford Industries a 122.5% tariff on Chinese imported twist ties in November[1]. 

What has made this case so transformative in the world of international trade is that the antidumping and countervailing duties were granted on the grounds that China has manipulated its currency, thereby allowing imported twist ties to be sold at Less-Than-Fair Value (LTFV) in part because China was determined in a November 2, 2017 publication involving aluminum foil to be a Non-Market Economy.  The greater ramifications of the twist tie ruling is that it opens the door to a very wide range of imported goods being subject to antidumping (AD) and countervailing duties (CVD) in the future since currency manipulation affects the prices of virtually all goods produced in the country in which the manipulation occurs.  Goods that are priced at LTFV can fall afoul of section 732(b) of the Tariff Act of 1930.