Gardner Intelligence Blog

Beware of Forthcoming Annualized Change Readings

Most headlines report metrics by citing the latest value along with the percent change in that metric compared to the same period one year ago.  Given that March 2021 marks the 1-year anniversary of COVID-19 and that much of the March 2021 data are now being released to the public, we should all expect to see headlines now — or in the very near future — begin reporting huge percent changes in monthly rate-of-change data. 

This presents a challenge for decision makers who are accustomed to translating single-digit — or low double-digit — change data into forward-looking decisions for their business.  A recent example of this is found in the U.S. Motor Vehicle and Parts Rail Traffic shown below.  Examining the data when represented as the change from a year ago, traffic in the last three weeks was up 249%, 397% and in the latest April 10th release, up 551%.  However, if you examine the data in absolute terms, one observes that the last 9 months of rail traffic is trending flat to slightly lower; extending a pre-COVID-19 decline.  

Capacity Utilization Growth Fastest Since March 2011

Capacity Utilization Growth Fastest Since March 2011

In March, durable goods capacity utilization was 73.5%, which was the second-highest rate of capacity utilization since February 2020. Compared with one year ago, capacity utilization increased 6.4%, which was the first month of growth in capacity utilization since May 2019 and the fastest rate of growth since March 2011. Of course, comparison with March 2020 was relatively easy and April and May will be even easier.

The annual change in durable goods capacity utilization contracted at a decelerating rate for the first time this cycle. The annual rate of contraction of 8.3% was the slowest since June 2020. It seems clear that the annual rate of change is bottoming out. 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.

Rising Inflation Sends the Real 10-Year Treasury Rate to Its Lowest Since Nov. 2011

In March, the nominal 10-year Treasury rate was 1.61%, which was the eighth month in a row that the nominal rate increased. Also, this was the highest rate for the 10-year Treasury since January 2020. Of course, historically, the current rate is extremely low. 

While the nominal 10-year Treasury rate was rising, the real 10-year Treasury rate was falling to its lowest rate since November 2011. The reason for this was that the rate of inflation increased to 2.62% in March, which was the highest rate of inflation since August 2018. As the real 10-year Treasury rate is the nominal rate minus the inflation rate, the real 10-year Treasury rate was -1.01% in March.

Unemployed Are Raring to Get Back To Work

One could argue that no single measure of the economy was more severely impacted by COVID than employment.  In the course of a single month in 2020 unemployment jumped from 3.5% to 14.8% on a seasonally adjusted basis.  For reference, the last time unemployment was that high was before World War Two.

As the stresses and issues of COVID decline, the latest unemployment data are indicating a strong willingness by employees to get back to work and of employers to hire.  The percentage of reentrants to the workforce as a percentage of total unemployed rose greatly in March of 2021, exceeding by a wide margin all previous readings over the last 12-months.  Furthermore the data show that reentrants to the workforce who went back to their former job rose in March to the highest level since October.  Overall the message is clear that many prospective workers are finding their way back into the labor force now after being sidelined for many months.

In our latest series of posts about the Gardner Business Index (GBI), Gardner has compared the previous high readings set in 2018 against those established during the first quarter of 2021.  In particular, the GBI’s supplier delivery reading has rocketed past its prior high of 63.3 to reach an astounding 77.3 as of March 2021.  At a minimum, a critical reader will be thinking “so what?, what does a 14-point spread between historic highs mean in all practicality?” 

In short it means that potentially more than twice as many survey participants in the March 2021 survey may have indicated that they are experiencing slowing supply chains (lengthening order-to-fulfillment times) as during the previous high of 2018 when the manufacturing sector was at the apex of a 2-year expansion of business.  That expansion was also the longest since at least 2011.  The 2018 supplier delivery reading at 63.3 had around 25-30% of all respondents reporting lengthening order-to-fulfillment times.  In contrast, the latest monthly result at 77.3 indicates that somewhere between 50-60% of respondents reported lengthening fulfillment times, more than double the percentage of respondents compared to the former high.  Getting back to the original question, what does this 14-point spread mean?  It means far more than most people realize.  Below is a short video that Gardner Intelligence has produced to help you understand how our results are calculated, what they mean and how you can benefit from them.

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