Gardner Intelligence Blog

Machine Tools - Average Price Improves but Growth Slows

May machine tool orders showed notable improvement over the last three to six months in the average price of a machine, but unit and dollar orders contracted compared with one year ago.

In May, machine tool unit orders were 1,884, which put orders below 2,000 units for the second time in four months. Also, this was the lowest level of unit orders since July 2017. The 2,000-unit order level is typically the demarcation line between a strong or weak machine tool market. May’s month-over-month rate of change contracted 25.5%, which was the fourth-straight month of contraction and the fifth in the last six months. Also, this was the fastest rate of contraction since July 2016. As a result, the annual rate of growth decelerated for the eighth consecutive month to 0.3%, which was the slowest rate of annual growth since March 2017, which was the last time the annual rate of change contracted.

Durable Goods Spending Growth Accelerates

In May, the month-over-month rate of growth for durable goods spending was 5.2%, which was the fastest rate of month-over-month growth since August 2018. In fact, the month-over-month rate of growth accelerated noticeably since its slowest rate of 1.8% in December 2018.  The accelerating growth was a result of the falling change in the real 10-year Treasury rate. Because the 10-year rate itself has dropped so low, durable goods spending is making up its largest share of all consumer spending ever.

However, the annual rate of growth continued to decelerate, slowing to 4.3% in May. But, the rate of growth should bottom out in the upcoming months.

Disposable Income Growing Slower

In May 2019, real disposable income was $14,608 billion, an increase of 2.3% compared with one year ago. That was the third slowest rate of income growth since February 2017 (only the last months were slower) and down from the peak rate of month-over-month growth of 3.6% in December 2018. 

The annual rate of growth decelerated to 2.7%, which was its slowest rate of growth since December 2017. The annual rate of growth was either 2.7% or 2.8% since January 2018. With noticeably slower growth since March , it is likely that the annual rate of growth in disposable income will decelerate more in the months ahead.

May Capacity Utilization Grows After Contracting in April

In May, durable goods capacity utilization was 75.6%, which was the second month in a row that capacity utilization was below 76%. Compared with one year ago, capacity utilization increased 0.9% after decreasing by 0.7% in April. April was the only month of month-over-month contraction since December 2016. 

Annual growth in durable-goods capacity utilization was unchanged at 2.2%. However, the annual rate of growth was down from its peak of 2.8% in January and its slowest rate of growth since July 2018. As the annual rate of growth tends to lead capital equipment consumption by seven to 10 months, it is signaling that capital equipment consumption will peak later this fall. However, machine tool orders appeared to have already peaked.

There were 124,000 housing permits filed in May 2019. This was the most permits filed since May 2018 and the third consecutive month with more than 105,000 permits filed. However, permits still contracted 0.8% month-over-month, which makes five-straight months of month-over-month contraction. As a result, the annual rate of change moved into an accelerating contraction mode for the first time since March 2011.

That said, the 10-year Treasury rate is indicating that the direction of housing permits may turn around in 2019. In May, the year-over-year change in the real 10-year Treasury rate was -0.61%, which was the seventh consecutive month the change declined and the fifth-straight month the change was below zero. May’s change in the rate was the lowest since December 2017.

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

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