Gardner Intelligence Blog

Housing Permits Climb Above 100,000

There were 112,600 housing permits filed in October 2018 after falling below 100,000 permits in September. Despite climbing back above 100,000 permits, October permits contracted 1.2 percent compared with one year ago. That was third consecutive month of contraction, the fourth in five months. The annual rate of growth in housing permits has mostly decelerated since May, falling to its slowest rate of growth since May 2017. 

In October, the year-over-year change in the 10-year Treasury rate was 41 basis points. This was only slightly lower than the previous month, keeping the year-over-year change near its highest level since March 2016. The change in the 10-year rate is indicating an economic slow down may occur in 2019. An increasing year-over-year change in the real 10-year Treasury rate is negative for housing permits because mortgages become relatively more expensive. Changes in the interest rate typically lead changes in housing permits by 12-14 months.

The Gardner Business Index (GBI) closed November at a recent historical nadir of 53.4. This latest figure lowers the year-to-date average to 57.3, which is still better than the record high annual average reading of 55.3 set last year. The latest reading is down 2.4 percent compared to the same month one-year ago. Gardner Intelligence’s review of the underlying data for the month indicates that the averages-based Index was supported by supplier deliveries, production and new orders. The components which lowered the index included employment, backlog and exports.

All components of the index indicated slowing growth in November with the exception of exports, which have been contracting since August. Production and new orders both expanded at their slowest pace since the fourth quarter of 2016. While the latest readings are lower than at any other time during the current business upcycle, these values would have been considered encouraging during past upcycle periods such as 2011-2012 and 2014-2015. This is a testament to the magnitude of this business cycle. 

During 2018, the automotive industry tracked along the same trajectory as the prior year. Unit sales data for 2018 showed continued and growing preference for SUVs and light trucks over cars. This trend is not new, as unit car sales, which peaked in June of 2014, have experienced an average 7.5-percent rate of annualized contraction in the 17 quarters since then. Truck and SUV sales continue to offset the weakness in car sales, which has kept total vehicle sales since mid-2015 at a monthly average of 1.4 million vehicles, or 17.3 million units on an annual basis. Looking forward to 2019, there are several factors such as interest rates and tariffs which will have significant near-term effects on the automotive market.

This year is also the third year that interest rates have increased, raising the cost on all other loans. The latest data for 2018 indicates that the current vehicle interest rate of 6.16 percent is 10 percent higher than a year ago and over 22 percent higher than two years ago, when the average rate was just over 5 percent. Initially, these rate increases – which increase monthly finance payments – did not slow the growth in financing amount, which peaked at over $30,500 during the first quarter of 2018. As of the latest data available in October, the average amount financed has now fallen over 2 percent, or over $600 per vehicle.

Gardner Intelligence, the research arm of Gardner Business Media, has released the 2019 Capital Spending Survey, which projects accelerating growth for the machine tool market next year. In it, Gardner Intelligence sees machine tool consumption increasing 11 percent to $7.748 billion in 2019, following smaller growth in the preceding two years. In 2018, machine tool prices rose, and delivery times lengthened, a trend that is likely to continue given the planned spending by machine shops detailed in the report.

In 2019, job shops are projected to spend roughly $2.2 billion on machine tools, more than twice as much as any other end market. The machinery/equipment and automotive end markets plan to spend roughly $1 billion apiece next year. Job shops, machinery/equipment and automotive, which are the top three industry end-market categories, will account for approximately 60 percent of machine tool consumption. Planned spending in aerospace, pumps/valves/plumbing products, electronics/computers/telecommunications and forming/fabricating (non-auto) industries should slightly exceed $400 million. These seven industries combined are projected to consume nearly 80 percent of all machine tools purchased in 2019.

Annual Production Growth Fastest in Nearly Four Years

In October, the durable goods production index was 110.3, which was the highest level ever for the index and the only month it was more than 110. Compared with one year ago, the index grew 4.2 percent for the second month in a row, the third consecutive month with growth faster than 4.0 percent. The historic average growth rate is 3.4 percent. Annually, the index grew for the 17th month in a row, with the growth rate accelerating for five straight months. Durable goods production in October was growing 3 .0 percent annually, the fastest rate of growth since January 2015.

Compared with one year ago, durable goods new orders grew 3.7 percent, the third consecutive month of growth. While the one-month rate of change grew for the 15th time in 16 months, the annual rate of growth decelerated to 6.3 percent. The annual rate of growth has hovered between 5.6 and 7.0 percent since May, indicating that the rate of growth has likely peaked this cycle. Durable goods new orders indicated that we could see a peak in production soon.

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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.