Gardner Intelligence Blog

In October, unit orders were 2,501, which was the third month in a row with orders of more than 2,500 units. Typically, 2,000 units per month is a sign of a strong machine tool market, making the last three months quite good. However, October’s unit orders were down 5.8 percent from one year ago. In combination with the slowing growth in the GBI: Metalworking since January, this indicates that machine tool unit orders have achieved their peak rate of annual growth this cycle.

Dollar orders performed a little better than unit orders in October. Real dollar orders were more than 20 percent above the historic average, and real dollar orders were just 0.7 percent less than they were in October 2017. Just like with unit orders, real dollar orders seemed to hit their peak rate of annual growth last month as October’s rate of growth decelerated to 16.8 percent. However, this was still the second fastest rate of annual growth in real dollar orders since July 2012.

November’s rate of contraction accelerated to 11.0 percent, which was the fastest since October 2016 and second fastest since August 1937. In fact, this was the fourth month in a row that the one-month rate of change in the money supply contracted more than 8 percent. The last time that happened was May to August 1937, which many believe led to a second economic downturn toward the end of the Great Depression. While the current contraction is a response to the unprecedented increase in the money supply following the Great Recession in 2008 and 2009 and is completely necessary, it does indicate that there could be unexpected and difficult-to-predict economic events in the future.

In November, the monetary base was $3.496 trillion, its lowest level since August 2013. November was the ninth straight month of month-over-month contraction. As a result, the annual rate of change in the money supply contracted for second month in a row, decelerating to -2.8 percent. 

Last month I asked if durable goods new had hit their peak. Based on the last month of economic data, I think it is safe to say that indeed they have.

New orders for real durable goods in October 2018 were $257,740 million. Compared with one year ago, new orders grew 4.6 percent, which was the fourth consecutive month of growth. As the one-month rate of change grew for the 16th  time in 17 months, the annual rate of growth accelerated to 6.5 from 6.2 percent.

In October, the month-over-month rate of growth for durable goods spending was 4.1 percent, which was the second month in a row that the growth rate was below the historic average of 5.5 percent. October’s rate of growth was the slowest since April 2016. The annual rate rate of growth was 6.4 percent, decelerating for the second straight month. This was the slowest rate of growth since April 2017. 

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, further deceleration in the rate of growth is ahead. Additionally, real disposable income has just started to grow slower, which will further contribute to slowing growth in durable goods spending. 

In October 2018, real disposable income was $15,700 billion. As is normally the case, real disposable income set an all-time high this month, up 2.8 percent from one year ago. Previous months saw downward revisions in real disposable income. As a result, the month-over-month rate of growth has slowed ever so slightly from what it was at the end of 2017 and beginning of 2018. 

The annual rate of growth remained unchanged at 2.7 percent for the third month in a row. This followed five straight months of 2.8 percent growth. The slightly slower growth and downward revisions to previous months indicated that real disposable income should be considered a negative leading indicator.