Gardner Intelligence Blog

Contraction in Cutting Tool Orders Accelerates

In August, cutting tool orders were $205.1 million, which was the highest level of orders since May. However, August orders contracted by 10.0% compared with one year ago, marking the sixth consecutive month of month-over-month contraction and the fastest rate of contraction since July 2016. The annual rate of growth decelerated for the seventh-straight month to 2.2%, which was the slowest rate of annual growth since June 2017. It is very likely that the annual rate of change in cutting tool orders will slide into contraction before the end of 2019.

The GBI: Metalworking is a good leading indicator of cutting tool orders. The rate of change in the Index began contracting in March and the contraction has accelerated since. In the last down turn in late 2015 and early 2016, the GBI: Metalworking contracted more than 10% year over year and so did cutting tool orders. It is likely that the GBI: Metalworking will see annual contraction of at least 10% in the next month or two. The Index is clearly indicating that the annual rate of growth in cutting tool orders will continue to decelerate, if not begin to contract, for the remainder of 2019. The GBI typically leads cutting tool orders by seven-to-10 months.

Real 10-Year Treasury Rate Continues Negative Trend

In September, the nominal 10-year Treasury rate inched higher for the first time in 10 months, rising to 1.70% from 1.63%. However, this was the second straight month the nominal rate was below 2.00% . September was the fourth month in a row that the nominal 10-year Treasury rate averaged less than the Fed Funds Rate, which is the overnight lending rate. The 10-year Treasury rate falling below the Fed Funds rate tends to indicate a recession is ahead.

The annual rate of inflation according to the CPI was below 2.00% for the fifth month in a row ninth time in 10 months. As a result, the real 10-year Treasury rate was -0.15%. September was the third time in four months that the real 10-year Treasury rate was negative.

August machine tool orders were 1,875 units and $360,687,000.

Unit orders for the month contracted 31.8% compared with one year ago, marking contraction for the seventh straight month and eight of the last nine months. The large month-over-month contraction was expected as last August’s unit orders set a record in the lead up to IMTS. In the Southeast, unit orders contracted just 8.2% while they contracted 54.7% in the North Central-West. Annually, unit orders contracted at an accelerating rate for the second month in a row.

Monetary Base Hits Lowest Point Since May 2013

In September, the monetary base was $3.210 trillion, which was the lowest level since May 2013. September was the 19th consecutive month of month-over-month contraction in the monetary base. The month-over-month contraction of 10.1% broke a string of four-straight months of decelerating contraction and two-straight months of contraction under than 10%. 

The annual rate of change in the money supply continued to contract at an accelerating rate for the 12th month in a row, falling to -10.9%. This was the fourth month in a row that the rate of contraction was faster than 10% and the fastest rate of annual contraction in nearly a century. A contracting money supply tends to lead to a contraction in capital equipment spending.

New Orders in Durable Goods Contract Once Again in August

New orders for real durable goods totaled $254,051 million in August, which was down 6.4% from one year ago. Durable goods new orders contracted for the sixth time in seven months, and the rate of month-over-month contraction has accelerated. The result was that the annual rate of change contracted 1.2%, contracting for the first time since May 2017. 

Compared with one year ago, new orders for motor vehicles and parts contracted 2.6%. That was the first month of month-over-month contraction since May 2018. The annual rate of growth, now 4.4%, decelerated for the second month. This was the slowest rate of annual growth since September 2018

Reports

Top Shops

‘Top Shops’ is a benchmarking and recognition program designed to help shops build their business.

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.