Gardner Intelligence Blog

There were 96,900 housing permits filed in April 2020. That was the first month below 100,000 permits since February 2019. Permits filed in April were down 18.4% compared with one year ago, which was the first month of contraction since June 2019. Also, this was the fastest rate of contraction since October 2009. In April, the annual rate of growth decelerated to 5.9%, which made it the eighth-straight month of growth.  

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -1.13%. This was the fourth consecutive month the real rate was negative. And, it was the lowest negative real rate since July 2012. The real rate would have been even lower except the inflation rate has fallen significantly (the real rate is the nominal rate minus the inflation rate). In April, the annual rate of inflation was just 0.33%, which was the lowest rate since October 2015. In April, the year-over-year change in the real rate was -140 basis points. The change was negative for the 16^th month in a row. This was the lowest level for the year-over-change since July 2012. 

In March 2020, real cutting tool orders were $189.8 million, which was the fourth time in five months that orders were below $190 million. Compared with one year ago, cutting tool orders contracted -10.8%, which marked the 13^th consecutive month of month-over-month contraction. In four of the last five months, orders have contracted faster than 9.5%. The annual rate of change contracted at an accelerating rate for the sixth month. The annual rate of contraction was 7.0%, which was the fastest rate of contraction since October 2016.

The GBI: Metalworking is a good leading indicator of cutting tool orders and leads cutting tool orders by seven to 10 months. The annual rate of change in the Index has contracted for 14 straight months, clearly indicating that the annual rate of contraction in cutting tool orders will continue to accelerate. Due to the effects of the coronavirus, the GBI annual rate of contraction accelerated since March. A bottom in the annual contraction of cutting tool orders cannot be expected until seven to 10 months after a bottom in the GBI annual rate of change.

In April, durable goods capacity utilization was 55.3%, which was the lowest rate ever. Compared with one year ago, capacity utilization contracted 26.6%, which was the fastest rate of month-over-month contraction ever. This was the 11^th month in a row and the 12^th of the last 13 months that capacity utilization contracted. 

The annual change in durable goods capacity utilization contracted at an accelerating rate for the sixth month in a row, falling to -4.4% from -2.2%. April was the fastest rate of annual contraction since May 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 into the third quarter of 2020 and likely through the remainder.

In April, the index for production of durable goods was 79.9, which was the lowest level for the index since July 2009. Compared with one year ago, the index contracted 26.4%, which was the fastest rate of month-over-month contraction in the history of the index.

The annual rate of change, which is easier to correlate with other data points, contracted 3.0% this month. This was the second consecutive month of accelerating contraction. The key leading indicator of production—durable goods new orders—is indicating further contraction in production. And, of course, the COVID-19 pandemic is likely to cause significant contraction in industrial production in May as well.

Automotive industry data for April of 2020 pointed to a rapid deterioration of the automotive market.  All measures of the market pointed to a severe and rapid contraction in both demand and production.  April data indicate that production came to a near standstill with production at less than 5% of previous levels.  Vehicle sales on an annualized basis fell from over 17M as recently as February to 8.8M.  

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