Gardner Intelligence Blog

Uncertainty Ahead for Durable Goods New Orders

New orders for real durable goods totaled $225,927 million in January, which was down 3.7% from one year ago. Additionally, this was the sixth-straight month of contraction and the 11th month of contraction out of the last 12. Although, the rate of contraction was somewhat slower than the previous 10 months.

The result was that the annual rate of change contracted 4.4%, moving at a faster rate of contraction for the sixth-straight month. This was the fastest rate of annual contraction since June 2016. However, based on accelerating growth in consumer spending on durable goods, durable goods orders should bottom out soon. Additionally, the trend in the 10-year Treasury rate is supportive of a bottom in durable goods new orders.

Special Consideration of COVID-19 “the Coronavirus” on Manufacturing:

Gardner Intelligence: Business Index 51.1

Durable Goods Spending Growth Strong for Second Month

In January, real consumer durable goods spending reached an all-time high. The month-over-month rate of growth for durable goods spending was 7.3%, which was the third month in the last five with growth faster than the historic average rate of 5.6%. 

The annual rate of growth accelerated for the second month in a row to 5.1%. This was the fastest rate of growth since March 2019. Because the real 10-year Treasury rate declined in 2019, and because of the acceleration in quarterly growth, there should be further accelerating growth in the first quarter of 2020. A further decline in the 10-year rate, which as of this writing is near 1%, could increase durable goods spending even more. However, economic concerns may cause a reduction in consumer spending.

Income Growth Slowest Since November 2017

In January, real disposable income was $15,154 billion, which was an all-time high as is usually the case for real disposable income. After one month below 2%, the one month rate of growth jumped back up to 2.2%. This rate of growth in income is fairly slow and well below the historical average growth rate of 3.1%. 

The annual rate of growth decelerated to 2.8%, falling below 3% for the second month in a row. Also, it was down from its peak rate of growth of 4.0% in December 2018 and the slowest rate of growth since November 2017. Based on the one-month and three-month rates of change, the annual rate of growth will continue to decelerate in early 2020, perhaps slowing to 2.0-2.2%. If so, that would be the slowest rate of income growth since the spring of 2017.

Cutting Tool Orders Possibly Turning Up

In December 2019, real cutting tool orders were $188.0 million,  the lowest level for cutting tool orders since December 2017. Compared with one year ago, cutting tool orders contracted -2.6%, which marked the 10th consecutive month of month-over-month contraction. However, this was the slowest rate of month-over-month contraction since April 2019. The annual rate of change contracted at an accelerating rate for the third month. 

The GBI: Metalworking is a good leading indicator of cutting tool orders and leads cutting tool orders by seven-to-10 months. The annual rate of change in the Index has contracted for 11 straight months, clearly indicating that the annual rate of contraction in cutting tool orders will continue to accelerate. However, the GBI rate of change does appear to be in the initial stages of a turn. If it bottoms in the first quarter of 2020, then it would be expected that the rate of change in cutting tool orders would bottom around the summer of 2020.

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.