Gardner Intelligence Blog

Housing Permits Hit Highest Rate Since June 2015

There were 131,700 housing permits filed in October 2019. The month-over-month change in permits was 17.0%, growing at an accelerating rate for the fourth-straight month. September’s rate of month-over-month growth was the fastest since November 2015.

In October, the annual rate of change grew 2.2%, accelerating for the second month in a row. The annual rate of growth will continue to accelerate in the months ahead as the three-month rate of change was 13.8% in October.

Capacity Utilization Contraction Accelerates for Fifth Month

In October, durable goods capacity utilization was 74.1%, which was the slowest rate since August 2017. Compared with one year ago, capacity utilization contracted 3.6%. This was the fifth month in a row of accelerating contraction and the fastest rate of month-over-month contraction since May 2016.

Annual growth in capacity utilization of durable goods decelerated to 0.2% from 0.8% in October. That is down from its peak of 2.8% in January, and its slowest rate of change since July 2017 when the annual rate of change last contracted. As the annual rate of growth tends to lead capital equipment consumption by seven-to-10 months, capacity utilization is signaling machine tool orders will contract for the remainder of 2019 and into 2020.

Contraction Continues in Cutting Tool Orders

In September, cutting tool orders were $195.3 million, which was the third time in four months that orders were below $200 million. September orders contracted 8.8% compared with one year ago, the seventh consecutive month of contraction. Additionally, the annual rate of growth decelerated for the eighth-straight month to 0.7%.  This was the slowest rate of annual growth since April 2017, which was the last time cutting tool orders contracted at an annual rate. It is very likely that the annual rate of change in cutting tool orders will slide into contraction next month.

The GBI: Metalworking is a good leading indicator of cutting tool orders. The annual rate of change in the Index has contracted for eight-straight months. In the last downturn in late 2015 and early 2016, the GBI: Metalworking contracted more than 10%, year over year, as did cutting tool orders. In October, the GBI: Metalworking showed annual contraction of 10.8%. The Index is clearly indicating that the annual rate of growth in cutting tool orders will contract for the remainder of 2019 and into 2020. The GBI typically leads cutting tool orders by seven-to-10 months.

Production Levels High But Contracting

In October, the index for production of durable goods was 108.3, which was the 14th time in 15 months that index was above 108.0. However, the index contracted 2.1% from one year ago, which made October the second consecutive month of accelerating month-over-month contraction.

The annual rate of change, which is easier to correlate with other data points, grew 1.4% this month. However, the annual rate of growth decelerated for the eighth-straight month. October’s growth rate was the slowest since August 2017, and it is likely to decelerate even more, as the month-over-month rate of growth has been relatively weak the last six months. Further, the key leading indicator of production – durable goods new orders – is indicating slower growth in industrial production.

10-Year Treasury Rate Trend Is Positive for Manufacturing

In October, the nominal 10-year Treasury rate was 1.71%, staying under 2.00% for the third month in a row. October was the fifth month in a row in which the nominal 10-year Treasury rate averaged less than the Fed Funds Rate, which is the overnight lending rate. The 10-year Treasury rate falling below the Fed Funds rate tends to indicate a recession is ahead.

The annual rate of inflation according to the CPI was below 2.00% for the sixth month in a row 10th time in 11 months. As a result, the real 10-year Treasury rate was -0.08%. October was the fourth time in five months that the real 10-year Treasury rate was negative.

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.