Gardner Intelligence Blog

Durable Goods Capacity Utilization Falls to Lowest Rate Ever

In April, durable goods capacity utilization was 55.3%, which was the lowest rate ever. Compared with one year ago, capacity utilization contracted 26.6%, which was the fastest rate of month-over-month contraction ever. This was the 11th month in a row and the 12th of the last 13 months that capacity utilization contracted. 

The annual change in durable goods capacity utilization contracted at an accelerating rate for the sixth month in a row, falling to -4.4% from -2.2%. April was the fastest rate of annual contraction since May 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 into the third quarter of 2020 and likely through the remainder.

Durable Goods Production Contracts at Fastest Rate Ever

Durable Goods Production Contracts at Fastest Rate Ever

In April, the index for production of durable goods was 79.9, which was the lowest level for the index since July 2009. Compared with one year ago, the index contracted 26.4%, which was the fastest rate of month-over-month contraction in the history of the index.

The annual rate of change, which is easier to correlate with other data points, contracted 3.0% this month. This was the second consecutive month of accelerating contraction. The key leading indicator of production—durable goods new orders—is indicating further contraction in production. And, of course, the COVID-19 pandemic is likely to cause significant contraction in industrial production in May as well.

April 2020 Auto Industry Data Point to Rapid Deterioration of the Market

Automotive industry data for April of 2020 pointed to a rapid deterioration of the automotive market.  All measures of the market pointed to a severe and rapid contraction in both demand and production.  April data indicate that production came to a near standstill with production at less than 5% of previous levels.  Vehicle sales on an annualized basis fell from over 17M as recently as February to 8.8M.  

PRODUCTION:

U.S. Automobile Loans Fall 1-Percent in April Signaling a Rapid Change in Loan Demand.

Data from U.S. commercial banks through April 29th, 2020 reported a $4-Billion decline in total automobile loans over the prior 4-week period.  Although the change over the course of the 4-weeks represents slightly less than a 1-percent change in the total, it represents a relatively rapid decline in loan demand compared to past movements of the data series.  

Change in 10-Year Rate Lowest Since July 2012

Change in 10-Year Rate Lowest Since July 2012

In April, the nominal 10-year Treasury rate was 0.66%, which was the second month in a row and the second month ever that the monthly average was below 1%. Also, this month’s rate was the all-time low for the 10-year Treasury rate.

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. 

Reports

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‘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.