Gardner Intelligence Blog

In June, the nominal 10-year Treasury rate declined for the eighth month in a row, dropping to 2.07% from a high of 3.15% in October 2018. This was the lowest nominal rate since October 2016. For the month of June, the nominal 10-year Treasury rate averaged 0.31% less than the Fed Funds Rate, which is the overnight lending rate. This is extremely unusual, and it indicates that the market believes a recession is ahead. 

The annual rate of inflation according to the CPI dropped below 2.00% for the sixth time in seven months. As a result, the real 10-year Treasury rate was -0.01%, which was the lowest real rate since January 2013 and the last time the real rate was negative.

The Gardner Business Index (GBI) sustained the same growth rate as recorded in the prior month with a reading of 50.8. The Index has fallen 6.2% from the same month one year ago. Index readings above 50 indicate expanding activity while values below 50 indicate contracting activity. The further away a reading is from 50 the greater the magnitude of activity change. Gardner Intelligence’s review of the underlying data for the month observed that the Index – calculated as an average of its components – was supported by supplier deliveries, production, employment and new orders. Exports and backlogs both contracted during the month, pulling the Index lower. Backlog activity in June contracted for another month as production activity grew relatively faster than new orders.

Data from recent months has indicated several trends. First, supplier deliveries activity has shadowed production levels very closely throughout 2019. This activity implies that the upstream market has done a commendable job of moderating production since early 2018 when manufacturers reported experiencing strong new orders growth and stressed supply chains to increase capacity.

Cutting Tool Orders Strong But Slowing

In May, cutting tool orders were $213.4 million, which was the 14th  time in 15 months that orders were more than $200 million. Also, only eight of the last 89 months had a higher total for real dollar orders than May. However, May orders decreased by 3.3% compared with one year ago, which was the third consecutive month of month-over-month contraction. The annual rate of growth decelerated for the fourth straight month to 8.4%, which was the slowest rate of annual growth since January 2018.

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. 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.

Monetary Base Contraction Accelerates

In June, the monetary base was $3.290 trillion, which was the second lowest level since June 2013 (only May 2019 was lower). May was the 16th consecutive month of month-over-month contraction in the monetary base. For each of the last eight months, the month-over-month rate of contraction was faster than 10%. Only the ten-month period from June 1921 to March 1922 had a longer streak of double-digit contraction month-over-month. 

As a result, the annual rate of change in the money supply contracted at an accelerating rate for the ninth month in a row, falling to -10.2%. This was the fastest rate of annual contraction in nearly a century. The money supply is indicating that the current decelerating growth in machine tool orders (and quite likely capital equipment in general) will continue for some time.

Durable Goods Orders Contract for Fourth Month

New orders for real durable goods in May totaled $245,008 million, which was down 5.6% from one year ago. May was the fourth-straight month that new orders contracted more than 2.2%. These are the first consecutive months of contraction since early 2017. The annual rate of growth decelerated for the seventh month in a row, moving from 2.6% to 1.5%. This was the slowest rate of annual growth since June 2017.

Compared with one year ago, new orders for motor vehicles and parts grew 6.8% in May. That was the fastest month-over-month rate of growth since December 2018. The annual rate of growth accelerated to 6.0% but is likely to decelerate more in future months. 


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.