Gardner Intelligence Blog

April Cutting Tool Orders Drop As Expected

April Cutting Tool Orders Drop As Expected

In April 2020, real cutting tool orders were $142.9 million, which was the fifth time in six months that orders were below $190 million. Also, this was the lowest level of cutting tool orders since the data was made public in January 2012. Compared with one year ago, cutting tool orders contracted -31.8%, which was the fastest rate of contraction on record and marked the 14th consecutive month of month-over-month contraction. In five of the last six months, orders have contracted faster than 9.5%. The annual rate of change contracted at an accelerating rate for the seventh month. The annual rate of contraction was 9.5%, which was the fastest rate of contraction since August 2016. This contraction was as expected based on the Gardner Business Index.

The GBI: Metalworking is a good leading indicator of cutting tool orders and leads cutting tool orders by seven to 10 months. The annual rate of change in the Index has contracted for 15 straight months, clearly indicating that the annual rate of contraction in cutting tool orders will continue to accelerate. Due to the effects of the coronavirus, the GBI annual rate of contraction accelerated since March. A bottom in the annual contraction of cutting tool orders cannot be expected until seven to 10 months after a bottom in the GBI annual rate of change.

Change in 10-Year Treasury Rate Negative for 17th Month

Change in 10-Year Treasury Rate Negative for 17th Month

In May, the nominal 10-year Treasury rate was 0.67%, which was the third month in a row and the third month ever that the monthly average was below 1%. Also, this month’s rate was just 0.01 basis points more than last month.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.98%. This was the fifth consecutive month and eight of the last 10 that the real rate was negative. The real rate would have been even lower except the inflation rate has fallen significantly. In May, the annual rate of inflation was just 0.12%, which was the lowest rate since September 2015. 

April Machine Tool Orders Lowest Since May 2010

April Machine Tool Orders Lowest Since May 2010

April machine tool orders were 1,349 units and $219,108,000.

April’s unit orders were the lowest monthly total since May 2010. Orders for the month contracted 36.9% compared with a year ago, which was the fastest month-over-month rate since October 2009. This was the 10th month in a row of contraction and the eighth in the last nine with a rate of contraction faster than 20%. The annual rate of contraction accelerated for the fourth month in a row to -20.2%. This was the fastest rate of annual contraction since May 2010.

$1.7 Trillion Increase Monetary Base Since February

$1.7 Trillion Increase Monetary Base Since February

In May, the monetary base was $5.150 trillion, which was its highest level ever by $300 billion, or 6% more than the previous all-time high from last month. May’s monetary base was $1.7 trillion more than it was just three months prior in February. The current increase in the monetary base was double the initial increase in the monetary base after the start of the financial crisis in 2008. And, the current increase in the monetary base in just three months is more than half of the total increase in the six years from 2008 to 2014.

Compared with one year ago, the monetary base increased 58.7% in May, which was the fastest rate of month-over-month growth since October 2009. This was the sixth month in a row of month-over-month accelerating growth. The annual rate of change was 5.7% in May, growing for the first time since August 2018.

May Data Point to Slowing Decline in Business Activity

May’s reading moved significantly higher from April’s all-time low reading. The latest reading implies that overall manufacturing business conditions worsened further in May, but at a much slower rate than experienced in April. Rising readings that are below 50 indicate a slowing rate of contracting business activity. As the overall economy re-normalizes and more businesses re-open, it is reasonable to expect that the Index will see future months of below 50 readings but overall continue to report higher readings in absolute terms.  Among the individual components of the Index, new orders and production both reported 13-point improvements compared to last month followed by substantial increases in the readings for employment and backlogs. 

For the first time since the beginning of the COVID-19 crisis in the United States, the reading for supplier deliveries fell.  As previously reported, slowing deliveries result in higher readings for this component of the Index.  The 4-point decline in the May reading might be an early indicator that the upstream production disruptions experienced in recent months is finally beginning to abate. 

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.