Gardner Intelligence Blog

Capacity Utilization Steadily Improving

Capacity Utilization Steadily Improving

In November, durable goods capacity utilization was 72.1%, which was the fourth month in a row that the rate of capacity utilization was above 70% and the highest rate of capacity utilization since February. Compared with one year ago, capacity utilization contracted 4.4%, which ended a string of six straight months that the month-over-month rate of change contracted at a slower rate. 

The annual change in durable goods capacity utilization contracted at an accelerating rate for the 13th month in a row, falling to -9.4% from -9.2%. November was the fastest rate of annual contraction since March 2010. As the annual rate of change tends to lead capital equipment consumption by seven-to-10 months, capacity utilization is signaling a bottom in the annual rate of change in capital equipment about the second quarter of 2021.

Steelmakers' Early COVID Pessimism Results in End of Year Supply Shortages

In the years leading up to the COVID pandemic, steel prices had been quite volatile.  Spot prices for steel coil during September of 2017 sold for as little as $590 per 20-ton contract.  This was short-lived as contract prices quickly climbed over the following eight months with some May contracts selling in excess of $925.  From here, contract prices experienced a sharp correction over the next 16-months as prices fell by 40% to around $550 per contract.  During this period of significant price volatility, steel production was relatively less sensitive to changes in finished steel prices. This is not unusual for industries with high overhead costs.   

The steep fall in prices and elevated level of production at the end of 2019 placed the industry in a particularly difficult position at the onset of the COVID pandemic which would soon see major industries—and in particular automotive production—almost completely shutdown.  The ensuing market disruption resulted in the steepest fall in steel production since the Great Recession in 2008 and prior to that in the early 1980s. 

October Machine Tool Orders Up 9%

October Machine Tool Orders Up 9%

October machine tool orders were 2,201 units and $376,181,000.

Machine tool orders of more than 2,000 units are typically a sign of a strong machine tool market. And, orders were more than 2,000 units for the second straight month and third time in five months. September’s unit orders increased 9.3% compared with one year ago, which was the second month in a row of accelerating month-over-month growth. As a result, the annual rate of contraction decelerated for the third straight month to its slowest rate of contraction since February. 

Money Supply Growth Fastest Since Great Recession

Money Supply Growth Fastest Since Great Recession

In November, the monetary base was $5.093 trillion, which was an increase from the previous month and the second highest (May 2020) level ever. Compared with one year ago, November’s monetary base was up 53.6%, which was the third month in a row and fifth in the last seven months with faster than 50% growth. This was the eighth consecutive month that the month-over-month rate of change was faster than 44%. This was the 12th month in a row of month-over-month growth. The annual rate of growth accelerated to 35.4% in November, which was the eighth straight month of accelerating growth and the fastest rate of growth since June 2010.

Historically, the annual rate of change in the monetary base leads capital equipment consumption, specifically machine tool orders, by 12-18 months. Although, the lead time between the monetary base and capital equipment consumption shrunk over the last decade. 

10-Year Treasury Rate Creeps Higher

10-Year Treasury Rate Creeps Higher

In November, the nominal 10-year Treasury rate was 0.87%, which was the highest the rate had been since February. However, this is still very near the lowest rate ever. It was the ninth month in a row and the ninth month ever that the monthly average was below 1%.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.44%. This was the 11th consecutive month and 14th of the last 16 that the real rate was negative. However, the rate was grinding slowly higher since April.  November’s real rate was the highest since January.

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.