Gardner Intelligence Blog

In April, the nominal 10-year Treasury rate declined for the sixth month in a row, dropping to 2.53% from a high of 3.15% in October 2018. This was the lowest nominal rate since December 2017. The nominal 10-year Treasury rate is just above the Fed Funds Rate, which is the overnight lending rate. The gap between the two rates is just 0.11%, which is unusually close together, indicating one of the two is “wrong.” The Fed is raising its rate due to extremely low unemployment and to keep inflation in check. The market sees a recession ahead as evidenced by the falling 10-year Treasury rate.

At the same time, the annual rate of inflation according to the CPI increased to its highest rate since November 2018. In April, the annual CPI was 2.00%, which was notable lower than its high of 2.95% in July 2018. For the second month in a row, the real 10-year Treasury rate was 0.27%, which was the lowest real rate since November 2017.

Durable Goods Production Indicates Flattened Growth

In April, the index for production of durable goods was at 108.6, which was flat compared with April 2018. This was the first time that the month-over-month rate of change did not grow since November 2016. Also, it was the fourth consecutive month that the rate of growth decelerated. 

The annual rate of growth, which is easier to correlate with other data points, decelerated for the third month in a row, falling to its slowest rate of growth since July 2018. Peak growth in industrial production is clearly in the past.

Month-Over-Month Capacity Utilization Contracts

 In April, durable goods capacity utilization was 75.3%, which was the first month that capacity utilization was below 76% since July 2018. Compared with one year ago, capacity utilization decreased 0.9%, which was the first month of contraction since December 2016. Also, the previous five months of capacity utilization were revised lower.

Annual growth in durable-goods capacity utilization decelerated to 2.2%. That was the third-straight month of decelerating growth and the slowest rate of annual growth since July 2018. As this annual rate of growth tends to lead capital equipment consumption by seven to 10 months, it is signaling that capital equipment consumption will peak later this fall. However, machine tool orders appeared to have already peaked.

Monetary Base Continues Double-Digit Contraction

March was the 14th consecutive month of month-over-month contraction in the monetary base, which was $3.303 trillion. For each of the last six months, the month-over-month rate of contraction was faster than 11%. Only the ten-month period from June 1921 to March 1922 had a longer streak of double-digit contraction month-over-month. 

As a result, the annual rate of change in the money supply contracted for the seventh month in a row, accelerating to -8.9 percent. This was the fastest rate of annual contraction since September 1922. The money supply is indicating that the current decelerating growth in machine tool orders (and quite likely capital equipment in general) will continue for some time.

March Machine Tool Orders Back Above 2,000 Units

In March, machine tool unit orders were 2,281, pushing orders back above 2,000 units after dipping below that level in February. Typically, when orders are above 2,000 units the machine tool market is strong. While that is the case currently, the rate of change is contracting, as March’s unit orders were down 11.7% compared with one year ago. March was the fourth month of contraction in the last six months, with only the North Central-East and Northeast having had an increase in unit orders in March compared with one year ago. As a result, the annual rate of growth decelerated for the sixth consecutive month to 5.2%.

For the third month in a row, real dollar orders performed worse than unit orders. In March, real dollar orders contracted 20.8% compared with one year ago, also the fourth month of contraction in the last six months. Only the Northeast had an increase in real dollar orders in March compared with one year ago, but the increase was just 0.3%. The annual rate of growth decelerated for the sixth month in a row to 7.2%, its slowest rate since December 2017.

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