Gardner Intelligence Blog

The Gardner Business Index (GBI) experienced its first contraction reading in over two years, registering 48.2 for July. The Index has fallen 13.9% from the same month one-year ago. Index readings above 50 indicate expanding activity while values below 50 indicate contracting activity. The further away a reading is from 50 the greater the magnitude of activity change. Gardner Intelligence’s review of the underlying data for the month observed that the Index – calculated as an average of its components – was supported by supplier deliveries and employment, which are often the slowest-responding components of the Index during a change in business activity. In contrast, new orders and production, the most sensitive Index components, both registered contracting readings for July – an event which has not happened since mid-2016. These components joined exports and backlogs in contracting during the month.

The contraction in both exports and new orders appears to have put additional pressure on backlog levels which fell to their lowest reading since September of 2016. These declines and the ongoing contraction of backlog and export readings likely played a contributing role to manufacturers slowing their production activity for the first time since July of 2016.

Growth in Durable Goods Spending Continues to Decelerate

In June, the month-over-month rate of growth for durable goods spending was 4.5%, which was fourth month in a row with faster than 4.0% growth. The moderate boost in the rate of 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, 4.5% month-over-month growth is below the historical average and one of the slower rates of growth since the first half of 2016. 

The annual rate of growth continued to decelerate, slowing to 4.4% in June. This was the slowest rate of annual rate of growth since April 2012, and the annual rate of growth was decelerating to nearly its slowest rate since coming out of the Great Recession.

Disposable Income Revised Higher In June

In June 2019, real disposable income was $15,007 billion, which was its highest level ever and its first time above $15,000 billion. Recent income data was revised, accelerating the month-over-month growth rate compared with last month’s data release. In June, the month-over-month rate of growth was 3.3%, which was the 21st consecutive month of growth above the historical average. However, the rate of growth in 2019 was noticeably slower than the rate of growth in 2018.

The annual rate of growth decelerated to 3.6%, which was its slowest rate of growth since May 2018. Also, it was down from its peak rate of growth of 4.0% in December 2018. This is a dramatic difference from the May data release where the annual rate of growth was either 2.7% or 2.8% since January 2018. With noticeably slower growth since the beginning of the year , it is likely that the annual rate of growth in disposable income will decelerate more in the months ahead.

There were 110,100 housing permits filed in June 2019. This was the fourth consecutive month with more than 105,000 permits filed. However, permits contracted 9.5% month-over-month, which makes six-straight months of month-over-month contraction. As a result, the annual rate of change contracted at an accelerating rate for the second month in a row, falling to 1.4%. That’s the fastest rate of contraction in housing permits since September 2011.

That said, the 10-year Treasury rate is indicating that the direction of housing permits may turn around in 2019. In June, the year-over-year change in the real 10-year Treasury rate was -0.66%, which was the eighth consecutive month the change declined and the sixth-straight month the change was below zero. June’s change in the rate was the lowest since December 2017.

Durable Goods Production Reaches Highest Level Ever

In June, the index for production of durable goods was at 111.4, which was its highest level ever. The index increased 1.4% compared with one year ago, extending its growth streak to 31 months. However, the growth rate has slowed in recent months, falling below the historical average for the last five months. 

However, the annual rate of growth, which is easier to correlate with other data points, decelerated to 2.9%, down from 3.0% last month. This growth was slower than the peak annual growth of 3.5% in February, and it was the slowest rate of growth since July 2018. The annual rate of growth is likely to decelerate even more as the month-over-month rate of growth has been relatively weak the last five months. Further, the key leading indicator of production – durable goods new orders – is indicating slower growth in industrial production.


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