Gardner Intelligence Blog

3-Month Decline in U.S. Dollar Index May Assist in Further Improving Manufactured Exports Activity

Monthly U.S. exports and imports have both fallen dramatically since February 2020.  As of the latest data release provided by Bureau of Economic Analysis (BEA) -which ends with May results- exports of U.S. goods had fallen over 25% while U.S. imports were down a less dramatic 17%.  During the February to May period the value of the U.S. Dollar (USD) against other currencies increased to multi-year highs not seen since at least before the Great Recession.  

The USD often appreciates greatly during periods of global economic uncertainty or duress because of the dollar’s ability to retain its value relatively better than that of other currencies.  In other words, foreign entities would rather hold (“demand”) USDs over their own domestic currency or assets because history has shown that the value of the USD fluctuates less compared to other currencies during a crisis and is highly “liquid”, meaning that others are generally willing to accept it in exchange for goods and services.  As the demand for USDs increases, this pushes up the “price” of the U.S. dollar relative to other currencies.  When this happens, it takes more foreign currency to purchase the same number of US dollars as it did previously, and an ensuring rise in the value of the dollar occurs as illustrated above.  One consequence of USD appreciation is that it makes U.S. Exports -priced in U.S. dollars- more ‘expensive’ when foreign currency must be converted to USDs to transact an international sale.

August marked an important turning point for many segments of the manufacturing industry.  New orders and production activity expanded for the first time since COVID disrupted the global economy.  Supplier deliveries data continue to signal that upstream manufacturing continues to struggle to deliver goods as quickly as their downstream customers demand.  

Durable Goods New Orders Contraction Slowing

Durable Goods New Orders Contraction Slowing

New orders for real durable goods totaled $216,171 million in July. This was just 5.7% less than one year ago, which was the slowest rate of month-over-month rate of contraction in the last five months. The month-over-month rate of contraction peaked in April at 31.2%. 

The result was that the annual rate of change contracted 9.8%, which was the fastest rate of annual contraction since April 2010. However, the all-time high consumer durable goods spending in July means that durable goods spending is indicating a bottom in the rate of contraction in durable goods new orders may be near. 

One-Month Net Jobs Change Shows Early Employment Rebound

After the collapse of nearly 21-million US nonfarm jobs in April according to the Bureau of Labor Statistics, the ensuing rebound has exceeded 1-million jobs per month since May.  The August reading released today (9/4) reported 1.37M new jobs added.  Within the manufacturing industry a healthy 29,000 jobs were added in August by this measure.

Source: Bureau of Labor Statistics, visualized by Gardner Intelligence

August Business Index Breaks Through into Expansionary Territory

The Gardner Business Index closed August at 50.7, marking its first expansionary reading since February 2020 and COVID’s initial disruption of the world economy. Readings above a level of 50 indicate expanding business activity. The further above 50 a reading is the faster business activity is expanding compared to the prior month.  Of the six components which constitute the Index three reported expanding activity, these were led by supplier deliveries which was followed by production and new orders.  In a post-COVID first, production and new orders both reported their first month of expansionary activity.  As explained in our previous reports, COVID-period readings of supplier delivery activity have been abnormally high because of disruptions to supply chains as opposed to growing supply chain backlogs, thanks to strong economic growth.  Of the remaining components of the Index, employment activity reported almost no change compared to the prior month and was followed by exports and backlogs, both of which extended their slowing contraction trends.

As previously reported, COVID’s disruption to the economy has substantially elevated supplier delivery readings since February.  Removing the influence of supplier deliveries from the overall Index reading would lower the latest reading to 49.2 and mark the fourth consecutive month of rising Index readings below 50.  Rising readings that are below ‘50’ signal slowing contraction in business activity.


Top Shops

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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.