Gardner Intelligence Blog

The Gardner Business Index (GBI) moved slightly lower in April to 52.9, marking the fourth consecutive month of slowing growth since January when the Index registered 53.9. The Index has fallen 10.7% from the same month one year ago. For context, all Index readings above 50 indicate manufacturing activity expansion, while values below 50 indicate contracting activity and a reading of exactly 50 indicates no change in activity from the previous month. Gardner Intelligence reviewed the underlying data for the month and observed that the Index – calculated as an average of its components – was supported by supplier deliveries, production and employment. The components which lowered the Index included backlogs and exports. New orders also lowered the Index, as it registered slightly below the average of the components. Both backlogs and exports contracted during the month.

According to the GBI, manufacturing activity between the end of 2018 and the present has been consistently driven by activity in production and supplier deliveries, with new orders and employment supporting it to a lesser degree. One significant change in the manufacturing sector in the year-to-date period has been in backlog activity, which a year ago was near record-high levels of expansionary activity and in recent months has contracted to levels last seen in late 2016. That backlogs have transitioned from strongly expanding to modestly contracting is not in itself concerning, as indefinitely expanding backlogs would indicate continually unbalanced supply and demand. Since early 2018, many of the Index’s components have reported slowing growth, a situation which may be more appealing than one of rapid and volatile sector expansion and contraction. Gardner’s 2019 outlook continues to be one of measured optimism for the sector due to a relatively strong domestic economy and low unemployment.

2018 Global Machine Tool Consumption Up 4.8%

On the surface, the findings of Gardner Intelligence’s latest World Machine Tool Survey portray a seemingly ordinary year for the machine tool industry. Scratch the surface, however, and we find something remarkable happening: major geographic regions for machine tools are moving in very different directions.

According to the latest survey, the results of which have recently been published, global machine tool consumption increased $4.1 billion, or 4.8%, to $91.9 billion in 2018. This made 2018 an apparently ordinary year, as the median annual increase in global machine tool consumption since 1961 is 4.2%.

According to the Federal Reserve, nearly 70% of all U.S. economic activity is generated by consumer spending. According to the latest consumer spending data which included December of 2018, total consumer spending growth grew 2.8% during the calendar year. This is nearly identical to the latest reading of 2018 U.S. GDP growth of 2.85%, also reported by the Federal Reserve. 

Gardner’s analysis of Wall Street data for the consumer cyclical sector can be generally classified under two industries; the first being Apparel and the second Home Furnishing, Fixtures, and Household Products, which will be referred to as “Home Goods.” The financial trends within these two industries over the last three years illustrate very different histories. In particular, the aggregated financial data provided by firms in the Home Goods industries suggests that the industry increases capital expenditures after experiencing an increase in free cash flows. Conversely, in the relatively short time period studied the Apparel industry’s free cash flow position, in general, does not appear to induce a similar change in capital expenditures.

Long-Term outlook for Housing Surpasses Short Term

There were 105,700 housing permits filed in March 2019. This was the first month with more than a 100,000 permits filed since November 2018. However, permits contracted 10.1% compared with one year ago, contracting for the third consecutive month. This was the fastest rate of contraction in the one-month rate of change since June 2016. As a result, the annual rate of growth decelerated for the third-straight month, falling to 1.5%.

In March, the year-over-year change in the 10-year Treasury rate was -52 basis points, which was fifth consecutive month the change declined and the third-straight month the change was below zero. March’s change in the rate was the lowest since January 2018. This trend is a positive leading indicator for housing permits, and capital equipment spending.

Annual Production Growth Slows First Time in Two Years

In March, the index for production of durable goods was at 110.7, which was an all-time high. However, compared to one year ago, the index increased 2.5%, which was the slowest rate of growth since May 2018. Additionally, March was the third-consecutive month of decelerating growth in the one-month rate of change. 

The annual rate of growth, which is easier to correlate with other data points, decelerated for the first time since this growth cycle began in May 2017. It is likely that this will mark the peak rate of growth for industrial production of durable goods.

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.