Gardner Intelligence Blog

Durable Goods Order Growth Should Slow to Start 2019

New orders for real durable goods in January totaled $231,014 million. Compared with one year ago, new orders grew 4.3 percent, which was the fastest rate of growth since October. Additionally, this was the seventh consecutive month of growth, though the annual rate of growth decelerated for the third month in a row from 5.6 to 5.5 percent. This was the slowest rate of annual growth since January 2018.

It seems clear that the rate of growth in new orders of durable goods has peaked and will grow slower heading into 2019. This becomes more likely when looking at the trend of real consumer durable-goods spending, a good leading indicator of real new orders in durable goods. Spending growth has slowed sharply the last couple of months, indicating slowing growth in new orders.

Housing Permit Growth Slowing

There were 96,900 housing permits filed in January 2019, the second fewest housing permits since February 2018. January’s total was the third straight month of month-over-month growth; however, the monthly rate of growth was barely above zero. Compared with one year ago, January’s permits increased 0.2 percent, which was the second consecutive month of decelerating growth. Additionally, January had the slowest rate of annual growth since May 2017.

In February, the year-over-year change in the 10-year Treasury rate was -47 basis points, which was the second straight month the change was below zero and the lowest change since January 2018. It’s quite possible that the change in the 10-year Treasury rate has reversed course and is now a positive leading indicator for housing permits as well as manufacturing, durable goods and capital equipment. 

Growth in Capacity Utilization Reacts to Backlogs

One month after growing at its fastest rate in six years, growth in durable goods capacity utilization seems to be slowing. In February, durable goods capacity utilization was 76.1 percent , which was the seventh month in a row with a rate greater than 76 percent. However, compared with one year ago, capacity utilization increased just 1.0 percent, making February the second consecutive month of decelerating growth.

Annual growth in durable-goods capacity utilization decelerated to 2.2 percent, ending a streak of eight-straight months of accelerating growth. The annual rate of growth in durable-goods capacity utilization tends to lead capital equipment consumption by seven to 10 months. Therefore, this indicator alone is signaling that capital equipment consumption will peak later this summer.

Production Index May Signal Peak Durable Goods Growth

In February, the index for production of durable goods was at 108.1. While the index was up noticeably from the last three months, February’s index grew just 2.5 compared with one year ago. That was the second straight month of decelerating growth and the slowest month-over-month rate of growth since May 2018. 

The annual rate of growth, which is easier to correlate with other data points, was unchanged in February, which ended a streak of eight-consecutive months of accelerating growth. It is likely that this will mark the peak of growth for durable goods industrial production

Real 10-Year Treasury Rate Falls for Second Month

The nominal 10-year Treasury rate has declined for the fourth month in a row, dropping to 2.68 percent from a high of 3.15 percent in October 2018. This was the lowest nominal rate since January 2018. At the same time, the annual rate of inflation according to the CPI has dropped, too. In February, the annual CPI was 1.52 percent, which was down nearly 50 percent from its high of 2.95 percent in July 2018. The result was a real 10-year Treasury rate of 34 basis points, which was just 3 basis points higher than last month.

In February, the year-over-year change in the 10-year Treasury rate was -47 basis points, which was the second straight month the change was below zero and the lowest change since January 2018. It’s quite possible that the change in the 10-year Treasury rate has reversed course and is now a positive leading indicator for manufacturing, durable goods and capital equipment. 

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