Gardner Intelligence Blog

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.

Disposable Income Grows from One Year Ago

Disposable Income Grows from One Year Ago

In July, real disposable income was $16,088 billion. This was the third straight month that the level of real disposable income declined, which is very unusual historically. Also, July income was 8.4% more than one year ago. However, the one-month rate of growth decelerated for the third consecutive month. All of the above is due to government transfer payments such as expanded unemployment insurance and government stimulus checks. 

The annual rate of growth accelerated to 4.8%. This was the fastest rate of annual growth since June 2015. Normally, this kind of acceleration would lead to a dramatic increase in consumer spending. While the increased government transfer payments may have helped support consumer spending, the question is what happens to consumer spending when those payments end.

Consumer Durable Goods Spending Hits All-Time High

Consumer Durable Goods Spending Hits All-Time High

In July, real consumer durable goods spending was $2,027,435 million, which is an all-time high and the first time real consumer durable goods spending was more than $2 trillion. The month-over-month rate of growth for durable goods spending was 13.4%, which was the fastest rate of growth since February 2004. Also, it was the second straight month with faster than 11% growth.

The annual rate of growth accelerated for the second straight month to 3.6%. The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.88%. This was the seventh consecutive month and 10th of the last 12 that the real rate was negative. So far, lower interest rates combined with increased government transfer payments and the stock market at all-time highs have been enough to significantly boost durable goods spending. The question is, will that continue when government transfer payments run out?

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.