Gardner Intelligence Blog

Durable Goods Orders Contract Faster in April

Durable Goods Orders Contract Faster in April

New orders for real durable goods totaled $167,643 million in April. This was the lowest total since July 2009 and was down 30.7% from one year ago. April was the fastest rate of month-over-month contraction since June 2009. April was the 13th month of contraction in the last 15. 

The result was that the annual rate of change contracted 7.8%, which was the fastest rate of annual contraction since April 2010. The sharp deceleration in growth in consumer durable goods spending in March and April means that durable goods new orders will continue to contract faster. 

April Durable Goods Spending Contracts at Fastest Rate Ever

In April, real consumer durable goods spending dropped to its lowest level since September 2014. The month-over-month rate of contraction for durable goods spending was -23.8%, which was the fastest rate of month-over-month contraction ever. 

The annual rate of growth decelerated for the second consecutive month, decelerating to the slowest rate of growth since June 2010. However, the real 10-year Treasury rate is falling at its fastest year-over-year rate since late 2012. The question is will lower interest rates be enough to overcome lower incomes?

April Income Skyrockets Due to Government Transfer Payments

In April, real disposable income was $16,965 billion, which was 13.8% more than one year ago. This was the highest level of real disposable income by $1.8 trillion, or roughly 12% more than the previous all-time high. Of course, the increase in disposable income was not a result of organic growth in the economy given the dramatic increase in unemployment due to the pandemic. Instead, the massive increase in income was a direct result of government transfer payments (e.g. unemployment).

The annual rate of growth accelerated to 3.4%. This was the fastest rate of annual growth since July 2019. Normally, this kind of acceleration would lead to a dramatic increase in consumer spending.

Housing Permits Fall Below 100,000 in April

Housing Permits Fall Below 100,000 in April

There were 96,900 housing permits filed in April 2020. That was the first month below 100,000 permits since February 2019. Permits filed in April were down 18.4% compared with one year ago, which was the first month of contraction since June 2019. Also, this was the fastest rate of contraction since October 2009. In April, the annual rate of growth decelerated to 5.9%, which made it the eighth-straight month of growth.  

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -1.13%. This was the fourth consecutive month the real rate was negative. And, it was the lowest negative real rate since July 2012. The real rate would have been even lower except the inflation rate has fallen significantly (the real rate is the nominal rate minus the inflation rate). In April, the annual rate of inflation was just 0.33%, which was the lowest rate since October 2015. In April, the year-over-year change in the real rate was -140 basis points. The change was negative for the 16th month in a row. This was the lowest level for the year-over-change since July 2012. 

Cutting Tool Orders Below $190 Million for Four of Five Months

In March 2020, real cutting tool orders were $189.8 million, which was the fourth time in five months that orders were below $190 million. Compared with one year ago, cutting tool orders contracted -10.8%, which marked the 13th consecutive month of month-over-month contraction. In four of the last five months, orders have contracted faster than 9.5%. The annual rate of change contracted at an accelerating rate for the sixth month. The annual rate of contraction was 7.0%, which was the fastest rate of contraction since October 2016.

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 14 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.

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