Gardner Intelligence Blog

Money Supply Increases More Than 50% for Second Month

Money Supply Increases More Than 50% for Second Month

In June, the monetary base was $5.002 trillion, which was slightly lower than last month. However, compared with one year ago, June’s monetary base was up 52.7%. Therefore, the one-month rate of change was more than 50% for the second month in a row. (In 2009, the monetary base increased more than 100% five times in the first eight months of the year.) This was the seventh month in a row of month-over-month growth. The annual rate of growth accelerated to 10.9% in June, which was the second straight month of accelerating growth.

Historically, the annual rate of change in the monetary base leads capital equipment consumption, specifically machine tool orders, by 12-18 months. Although, the lead time between the monetary base and capital equipment consumption shrunk over the last decade. 

Durable Goods New Orders Continue to Contract

Durable Goods New Orders Continue to Contract

New orders for real durable goods totaled $186,870 million in May. This was the second lowest total since July 2009 and was down 22.3% from one year ago. May was the second fastest rate of month-over-month contraction since June 2009, and May was the third consecutive month of faster than 17% contraction.  

The result was that the annual rate of change contracted 9.1%, which was the fastest rate of annual contraction since April 2010. The sharp deceleration in growth in consumer durable goods spending in March through May means that durable goods new orders will continue to contract faster. 

May Durable Goods Spending Returns to Pre-Pandemic Level

In May, real consumer durable goods spending was $1,809, 279 million, which brought real consumer durable goods spending back to its pre-pandemic level. The month-over-month rate of growth for durable goods spending was 2.4%, ending two months of contraction. 

The annual rate of growth decelerated for the third consecutive month, decelerating to the slowest rate of growth since June 2010. However, the real 10-year Treasury rate is falling at its fastest year-over-year rate since late 2012. So far, lower interest rates have been enough to overcome lower incomes and boost durable goods spending. The question is will that continue without a significant increase in employment?

Income Growth Strong but Down from April

Income Growth Strong but Down from April

In May, real disposable income was $16,154 billion, which was 8.2% more than one year ago. This was the second-highest level of real disposable income ever. However, it was more than $800 billion lower than the income level in April because of lower transfer payments less in May than April. The 8.2% growth rate in May was more than 2.5 times the historic average month-over-month growth rate in real disposable income. Clearly, the month-over-month growth is a direct result of government payments to individuals. Will these payments continue? If not, how far will disposable income fall?

The annual rate of growth accelerated to 3.8%. This was the fastest rate of annual growth since January 2019. Normally, this kind of acceleration would lead to a dramatic increase in consumer spending. However, this clearly has not happened since the start of the pandemic. Keep in mind that changes in real disposable income typically lead capital equipment consumption by almost 24 months.

June Gardner Business Index: 44.7

June’s reading of 44.7 brought the Gardner Business closer to a reading of ‘50’ for a second month. Rising readings that are below 50 indicate a slowing rate of contracting business activity. Stated differently, the June data indicate that a shrinking proportion of manufacturers experienced worsening conditions and a growing proportion experienced unchanging or improving conditions relative to May.  This situation was also true of May’s results as compared to April’s. Recent activity reported by broad economic indicators of the economy including a rebound in consumption spending and a precipitous drop in weekly initial claims for unemployment since late-March support the impression that the economy is nearing the ‘bottom’ of the decline caused the initial costs brought on by COVID-19.

Gardner’s survey data found several bright spots including the first expansionary reading of overall business conditions as reported by firms between 100 and 250 employees in size.  This category of manufacturers reported a strong expansion in new orders and production in June as compared to May.  This group also reported a smaller expansion in employment activity.  In contrast, backlog and export order activity reported slowing contraction as their results moved higher but remained below ‘50’.


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World Machine Tool Survey

An independent annual survey that collects statistics from machine tool consuming and producing countries and compares them in real U.S. dollars.

Capital Spending Survey

An annual survey that collects statistics regarding budgeted spending on machine tools, testing equipment, software and more.

Gardner Business Index

A diffusion index measuring month-to-month changes in activity at durable goods and discrete parts manufacturing facilities.