Gardner Intelligence Blog

10-Year Treasury Rate at All-Time Low

10-Year Treasury Rate at All-Time Low

In July, the nominal 10-year Treasury rate was 0.62%, which was the lowest rate ever. And, it was the fifth month in a row and the fifth month ever that the monthly average was below 1%. So, the nominal 10-year Treasury rate was at or hovered near its all-time lows for five straight months.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.88%. This was the seventh consecutive month and 10th of the last 12 that the real rate was negative. Inflation was relatively low but increased in the last two months. 

Capacity Utilization Increases for Third Month

Capacity Utilization Increases for Third Month

In July, durable goods capacity utilization was 68.1%, which was the third month in a row the rate of capacity utilization moved higher. Compared with one year ago, capacity utilization contracted 10.0%, which was the third straight month that the month-over-month rate of change contracted at a slower rate. 

The annual change in durable goods capacity utilization contracted at an accelerating rate for the ninth month in a row, falling to -8.5% from -7.7%. July was the fastest rate of annual contraction since April 2010. As the annual rate of change tends to lead capital equipment consumption by seven-to-10 months, capacity utilization is signaling accelerating contraction in capital equipment spending through at least the third quarter of 2020 and likely through the remainder of the year.

Production Contracting at a Slower Rate

Production Contracting at a Slower Rate

In July, the index for production of durable goods was 94.5. Compared with one year ago, the index contracted 9.8%, which was the third month in a row that the month-over-month rate of change in the index decelerated and the first month the rate of change contracted less than -10.0% since March. 

The annual rate of change, which is easier to correlate with other data points, contracted 7.4% this month. This was the fifth consecutive month of accelerating contraction. The key leading indicator of production—durable goods new orders—is indicating further contraction in production. However, consumer durable goods spending, which leads durable goods new orders, appeared to be at a bottom and about to start contracting at a slower rate.

Money Supply Growth Slowing Down

Money Supply Growth Slowing Down

In July, the monetary base was $4.700 trillion, which was lower for the second month in a row. Compared with one year ago, July’s monetary base was up 44.2%.  This was the fourth consecutive month that the month-over-month rate of change was faster than 44%. However, the rate of growth decelerated for the second straight month. (In 2009, the monetary base increased more than 100% five times in the first eight months of the year.) This was the eighth month in a row of month-over-month growth. The annual rate of growth accelerated to 15.4% in July, which was the third straight month of accelerating growth.

Historically, the annual rate of change in the monetary base leads capital equipment consumption, specifically machine tool orders, by 12-18 months. Although, the lead time between the monetary base and capital equipment consumption shrunk over the last decade. 

Cutting Tool Orders Improving

Cutting Tool Orders Improving

In June 2020, real cutting tool orders were $150.6 million, which was the highest order total since the beginning of the pandemic. This is an encouraging sign that durable goods manufacturing is recovering. Compared with one year ago, cutting tool orders contracted -25.3%, which was the 16th consecutive month of month-over-month contraction. While this was still a fast rate of month-over-month contraction, it was a slower rate of contraction than the previous two months.

The annual rate of change contracted at an accelerating rate for the ninth month. The annual rate of contraction was 13.7%, which was the fastest rate of annual contraction since the data was made public. At the beginning of 2020, the Gardner Business Index: Metalworking indicated that the annual rate of contraction in cutting tool orders would bottom out in the summer of 2020. However, the pandemic accelerated the contraction in metalworking and extended the accelerating contraction in cutting tool orders.

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A diffusion index measuring month-to-month changes in activity at durable goods and discrete parts manufacturing facilities.