Gardner Intelligence Blog

As durable goods orders, industrial production and capacity utilization have remained strong, cutting tool orders have been robust. Orders were above $200 million for the sixth consecutive month. In August, orders grew 10.9 percent compared with one year ago. This was the fourth time in the last five months that order growth was in double digits. For the second month, the annual rate of growth remained at 9.2 percent, the fastest rate of growth since USCTI data was made public in January 2012.

In addition to the aforementioned leading indicators, the GBI: Metalworking is an excellent leading indicator of cutting tool orders. While the rate of growth in the Index has decelerated, which typically signals decelerating growth in cutting tool orders, it has remained at a very high level since early 2017. The consistently strong growth at metalworking facilities is a likely reason for the recent surge in cutting tool orders.

June was slow, and July had solid growth, but August machine tool orders surged as the industry headed into IMTS.

Unit orders in August were 2,711, which was up 27.2 percent compared with one year ago. That was the fastest rate of month-over-month growth since January. The 2,711 units ordered were the most since December 2017 and the second most since the IMTS held in September 2016. The next best pre-IMTS August unit orders was 2,248. so, this was easily the strongest pre-IMTS August since AMT began tracking the United States Machine Tool Orders (USMTO) in 1996. Further, the historical record shows that a pre-IMTS August was just as a likely to contract as it was to grow compared with one year ago. 

New orders for real durable goods in August 2018 were $264, 348 million, the third highest total since June 2017. Compared with one year ago, new orders grew 10.1 percent, which was the fastest rate of growth since February and just the third month with growth faster than 10 percent since July 2014. The month-over-month rate grew for the 15th time in 16 months. As a result, the annual rate of growth accelerated for the second month in a row to 6.6 percent. This was the second fastest annual rate of growth since July 2012.

The current trend in durable goods new orders is a very positive sign for capital equipment consumption in 2019.

For the second month in a row, the Federal Reserve took the opportunity to significantly reduce the money supply, causing it to fall to $3.573 trillion in September, its lowest level since December 2016. Compared with one year ago, the monetary base contracted 8.1 percent, which was the second month in a row it contracted more than 8 percent. Further, September was the seventh month in a row of contraction, causing the annual rate of change to decelerate to 0.0 percent. This was the first month the money supply failed to grow since November 2017.

If the Federal Reserve continues its paring back of the money supply, then the economy will eventually be negatively impacted, but there is typically a long lead time of 18 to 24 months between changes in the money supply and changes in capital equipment consumption. That said, the lead time has shortened since the Great Recession due to the dramatic effects of the massive amount of money the Federal Reserve created to pump up the economy. 

In August, the month-over-month rate of growth for durable goods spending was 6.4 percent, which was the fastest rate of growth since May and noticeably above the historical average. The annual rate rate of growth was 6.8 percent, hovering between 6.6 and 6.9 percent since July 2017. This was significantly above the historical average growth rate of 5.4 percent

Real consumer durable goods spending in August 2018 was $1,673 billion real dollars (seasonally adjusted at an annual rate). Low interest rates have helped boost durable goods spending as a percent of total consumer spending, but with the 10-year Treasury rate rising year over year, it may be that a deceleration in the rate of growth in durable goods consumer spending lies ahead.