Gardner Intelligence Blog

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.

Durable Goods Spending Growth Accelerates

In March, the month-over-month rate of growth for durable goods spending was 3.0%, which was the third straight month of accelerating growth. However, the rate was below the historic average for the seventh consecutive month. Because of the relatively weak month-over-month rate of growth, the annual rate of growth also decelerated for the seventh consecutive month. It fell to 4.5%, the slowest rate of annual growth since May 2012.

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 consumer durable goods spending.

Capacity Utilization Grew Slower in March

One month after growing at its fastest rate in six years, growth in the capacity utilization of durable goods decelerated for the first time since July 2017. In March, durable goods capacity utilization was 76.6%, which was the eighth month in a row with a rate greater than 76%. However, compared with one year ago, capacity utilization increased just 1.1%, making March the third-straight month of decelerating growth.

Annual growth in durable-goods capacity utilization decelerated to 2.6%. As this 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.

March Income Growth Slowed Significantly

In March 2019, real disposable income was $14,595 billion, an increase of 2.3% compared with one year ago. That was the slowest rate of income growth since February 2017, and March was the third-straight month of decelerating growth in real disposable income. Typically, real disposable income sets an all-time high almost every single month. However, March’s income level was the lowest since November 2018. 

The annual rate of growth was unchanged at 2.9%, as the rate has been either 2.8% or 2.9%since February 2018. With March’s much slower growth, it is likely that the annual rate of growth in disposable income will decelerate soon.

Trend in 10-Year Treasury Positive Sign for Manufacturing

The nominal 10-year Treasury rate declined for the fifth month in a row, dropping to 2.57 percent from a high of 3.15 percent in October 2018. This was the lowest nominal rate since December 2017. The nominal 10-year Treasury rate is just above the Fed Funds Rate, which is overnight lending rate. It is quite unusual for the two rates to be so close together, indicating one of the two is “wrong.”

At the same time, the annual rate of inflation according to the CPI ticked up slightly from the previous two months. In March, the annual CPI was 1.86 percent, which was down significantly from its high of 2.95 percent in July 2018. The result was a real 10-year Treasury rate of 27 basis points, which was the lowest real rate since November 2017.


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