Gardner Intelligence Blog

(Negative) There were 115,300 housing permits filed in March 2018. This was the first time in five months with more than 100,000 permits and the highest level of permits since August 2017. Compared with one year ago, housing permits increased just 2.5 percent, which was the fourth slowest rate of growth since January 2017. The annual rate of growth decelerated slightly to 6.1 percent, which was the slowest rate of growth since October 2017.  The annual rate of growth does appears poised to further decelerate in upcoming months.

The 10-year Treasury rate is an excellent leading indicator for housing permits. The year-over-year change in the real rate, -6 basis points, increased to its highest level since April 2016, which was the last time the year-over-year change was positive. An increasing year-over-year change in the real 10-year Treasury rate is negative for housing permits as homes become relatively more expensive.

(Positive) Durable goods capacity utilization was 75.9 percent in March 2018. This was the highest rate of capacity utilization since June 2015. The one-month rate of change was 2.7 percent, which was fastest rate of month-over-month growth since January 2015. Therefore, the annual rate of growth in durable goods capacity utilization accelerated for the seventh straight month, reaching its fastest rate of growth since June 2015. This is a very positive sign for capital equipment spending in 2018.

The trend in the backlog index shows that the rate of change in capacity utilization should continue to grow at a faster rate until sometime between April and June. Since June 2008, the GBI: Metalworking backlog index has been a very good leading indicator of durable goods capacity utilization. While the rate of growth in the backlog index is still quite strong, it has decelerated for five months now. The backlog index tends to lead capacity utilization by seven to 10 months.

(Positive) The durable goods industrial production index was 107.8 in March 2018, which was the second highest level ever behind June 2014. March’s index increased 3.5 percent compared with one year ago. This was the fastest rate of growth since July 2014 and the the fifth time in seven months of faster than 2.0 percent growth. The annual rate of growth has been accelerating since June 2017. Accelerating growth in real durable goods new orders is pointing to even faster growth in durable goods production.

We track industrial production and its leading indicators for a number of industries.

In February, machine tool orders were 1,872 units and $340,910,000.

The 1,872 units were 5.5 percent more than one year ago. While this was the slowest rate of growth since March 2017, machine tool orders grew for the fifth month in a row (September 2017 contracted because it was compared to an IMTS-fueled September 2016). As a result, the annual rate of change accelerated to 10.6 percent, which was its fastest rate of growth since August 2017. Unit growth across the regions was quite varied. The North Central West and South Central regions had strong unit growth of 36.9 and 20.1 percent, respectively. All the other regions had flat or contracting unit growth with the West region contracting the most at 5.0 percent.

Real cutting tool orders were $190.1 million in February 2018. February’s orders increased 7.0 percent compared with one year ago. This was the 10th consecutive month of growth and the fourth time in five months the month-over-month rate of growth was at least 7.0 percent. The annual rate of growth accelerated slightly to 7.5 percent, which was its fastest rate of growth since May 2015.

In March, the GBI: Metalworking index climbed to 59.5, which was down slightly from the previous month but still very high historically. The index has sustained a high level since February 2017. The index leads cutting tool orders by about six months. Therefore, as the chart below shows, the index is indicating that, on its current trajectory, the annual growth rate in cutting tool orders is likely to continue accelerating for at least a few more months.