Gardner Intelligence Blog

Capacity Utilization Contraction Accelerates

In August, durable goods capacity utilization was 76.0%, which was the highest rate of durable goods capacity utilization since March. However, compared with one year ago, capacity utilization contracted 0.9%. This was the second month in a row of accelerating contraction and the fastest rate of month-over-month contraction since November 2016.

Annual growth in capacity utilization of durable goods decelerated to 1.3% from 1.7% in August. That is down from its peak of 2.8% in January, and its slowest rate of growth since November 2017. As the annual rate of growth tends to lead capital equipment consumption by seven-to-10 months, it is signaling further downward movement in the rate of change in capital equipment. Since machine tool orders have grown slower for months, capacity utilization is signaling a contraction is just around the corner.

In August, the nominal 10-year Treasury rate declined for the 10th month in a row, dropping to 1.63% from a high of 3.15% in October 2018. This was the first time the nominal rate was below 2.00% since October 2016 and the lowest nominal rate since August 2016. August was the third month in a row that the nominal 10-year Treasury rate averaged less than the Fed Funds Rate, which is the overnight lending rate. The difference in the 10-year Treasury and Fed Funds rates was the lowest since April 2007. 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 dropped below 2.00% for the fourth month in a row eighth time in nine months. As a result, the real 10-year Treasury rate was -0.27%. August was the second time in three months that the real 10-year Treasury rate was negative and the lowest real rate since December 2012.

Monetary Base Contraction Continues Deceleration

In August, the monetary base was $3.289 trillion, which was the third lowest level since June 2013. May was the 18th consecutive month of month-over-month contraction in the monetary base. August was the fourth consecutive month of decelerating contraction and the second straight month that the month-over-month rate of contraction was less than 10%. 

The annual rate of change in the money supply continued to contract at an accelerating rate for the 11th month in a row, falling to -10.7%. This was the third month in a row that the rate of contraction was faster than 10% and the fastest rate of annual contraction in nearly a century. However, this should change soon with the 1-month and 3-month rate of change both contracting at a decelerating rate.

Durable Goods Orders Grow for First Time in Six Months

New orders for real durable goods totaled $233,644 million in July, which was up 0.9% from one year ago. July was the first time durable goods new orders grew month-over-month since January. However, the annual rate of growth decelerated for the ninth month in a row, slowing to 0.3% from 0.8%. This was the slowest rate of annual growth since orders last contracted in May 2017.

Compared with one year ago, new orders for motor vehicles and parts grew 4.7% in July. That was the second-fastest month-over-month rate of growth since January. However, the annual rate of growth accelerated to 5.5%. 

July Shows Mixed Results in Machine Tool Orders

July machine tool orders were 1,959 units and $373,120,000.

Unit orders for the month contracted 3.3% compared with one year ago, marking contraction for the sixth straight month and seven of the last eight months. Annually, unit orders continued to grow at a slower rate, but they are likely to contract next month.

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.