Gardner Intelligence Blog

June’s machine tool order data indicates that the industry took a breather as it gears up for IMTS in September. Compared with one year ago, unit orders contracted 0.5 percent while real dollar orders grew a modest 2.7 percent. The contraction in unit orders was the first month of contraction (not including IMTS to non-IMTS comparisons) since October 2016, and the modest growth in dollar orders essentially was the slowest rate of growth since March 2017. The data could be the result of orders being held for IMTS, so it is too early to tell whether machine tool orders have reached a peak.

While order data was relatively flat overall, regional performance varied widely. Note the wide variance in unit and dollar orders by region.

New orders for real durable goods in June 2018 reached $272,106 million. This was the second highest total in the last 12 months, but durable goods new orders contracted 0.2 percent compared with one year ago. This slight contraction ended 13 straight months of growth. As a result, the annual rate of growth –  now 5.7 percent – decelerated for the first time since growth began accelerating in June 2017, shifting from a positive to a negative leading indicator. With real consumer durable goods spending growth flattening, it is likely that durable goods orders have hit a peak this cycle. Orders tend to lead industrial production by about three months and capital equipment consumption by 10 to 15 months.

Motor vehicle and parts orders increased 1.1 percent compared with one year ago, growing for the fifth time in six months. But, June’s growth was not strong enough to prevent further slowing in the annual rate of growth.

The Gardner Business Index (GBI) signaled slowing growth through July, as the index fell to a reading of 55.2. Compared to historical results, the latest reading is only slightly below the average 2017 reading of 55.3, the highest calendar-year average in recorded history. The Index continues to indicate that economic and business conditions in manufacturing are strong, with the Index up 1.3 percent compared to the same month one year ago. Gardner Intelligence’s review of the underlying data for the month indicates that the Index was driven higher primarily due to supplier deliveries and to a much lesser extent by production. The components which lowered the index’s average-based calculation included new orders, employment, backlog, and exports. No components contracted during the month.

For a third consecutive month, supplier deliveries are the fastest-growing component of the total index. Furthermore, there have been six times in the current calendar year when supplier deliveries beat its last all-time high of 59.3 set in early 2012. This month’s reading provided further evidence of a maturing business upcycle, as new orders and production growth have recently given way to supplier deliveries and employment. As supply chains have responded to the growing flow of new orders over the last 18 months, the manufacturing industry is now more capable of handling greater volumes of production. However, if future new orders are insufficient to sustain this enlarged production system, manufacturers will eventually have to right size their operations.

After a significant data revision, durable goods spending accounted for its largest ever share of all consumer spending for the second month in a row at 13.0 percent. However, the rate of growth in consumer durable goods spending has flattened recently.

In June, the month-over-month rate of growth was 6.6 percent, which was above the historic average. Yet, the growth rate has been range bound from 6.4 to 6.9 percent since December 2017. The annual rate rate of growth has been within that same range since May 2017, staying between 6.8 and 6.9 percent since November 2017.

In June 2018, real disposable income was $15,520 billion. As is normally the case, real disposable income set an all-time high this month, up 3.1 percent from one year ago. This was the fastest rate of growth since October 2015, and it was the first time since the same month that the month-over-month growth rate climbed to its long-term average. 

The annual rate of growth remained unchanged at 2.8, as it has since February. This was the fastest rate of annual growth since May 2016, which is unusually flat. Regardless, the growth in real disposable income is still a positive sign for durable goods manufacturing.