Gardner Intelligence Blog

Registering 53.4, the Gardner Business Index (GBI) moved marginally lower from the prior month. The latest result indicates that manufacturing continues to expand, albeit it at a lower rate than experienced earlier in the latest business cycle. February marks the 25th consecutive month of expansion in the manufacturing industry according to Gardner’s survey. By comparison, the prior expansionary cycle in 2014 and 2015 lasted only 15 months. Compared to the same month one year ago, the Index is down 11.8 percent, but it is important to remember that February 2018 set an all-time record high reading over 60.0. Gardner Intelligence’s review of the underlying data for the month observed that the Index -calculated as an average of its components- was supported by production, supplier deliveries, new orders and employment. The components which lowered the Index included backlog and exports. Exports was the only component to contract.

February’s data provides additional support to past observations. The first of these is the continuing gradual rebalancing of supplier deliveries with production. Over the last six months, production has expanded at a relatively stable rate while supplier deliveries have experienced slowing growth since surging in mid-2018. This suggests that upstream suppliers are taking a careful approach to rebalancing supplies with current demand.

Housing Permits Grow for Second Month

There were 95,400 housing permits filed in December 2018, the fewest housing permits since February 2018. December’s total was the second-straight month of month-over-month growth; however, the monthly rate of growth has been tepid. Compared with one year ago, December’s permits increased 4.5 percent, which was the third consecutive month of decelerating growth. This was the slowest rate of annual growth since May 2017.

In January, the year-over-year change in the 10-year Treasury rate was -17 basis points, which was the first month the change was below zero since March 2018 and the lowest change since January 2018. The change declined for the second month in a row, indicating that the change in the 10-year Treasury rate has reversed course and is now a positive leading indicator for manufacturing, durable goods and capital equipment. 

Durable Goods Order Growth Slows in December

New orders for real durable goods in December 2018 totaled $256,822 million. Compared with one year ago, new orders grew just 0.9 percent. This was the sixth-consecutive month of growth, but it was the slowest rate of growth since June 2018 and the second slowest since April 2017. While the one-month rate of change grew for the 18th time in 19 months, the annual rate of growth decelerated for the second month in a row from 6.1 to 5.6 percent. This was the slowest rate of annual growth since February 2018.

It seems clear that the rate of growth in new orders of durable goods has peaked and will grow slower heading into 2019. This becomes more likely when looking at the trend of real consumer durable-goods spending, a good leading indicator of real new orders in durable goods. Spending growth has slowed sharply the last couple of months, indicating slowing growth in new orders.

Gardner Intelligence reviewed 67 publicly-traded firms in the medical-devices and medical-instruments and supply industries. At the time this article went to print, nearly 40 percent of those firms had reported fourth-quarter results. Evaluating the fourth-quarter data from one-year ago, as well as on a 12/12 rate-of-change basis (comparing the last 12 months with the preceding 12 months), we see evidence of an industry that continues to perform well despite a myriad of economic concerns, both domestic and international.

Interestingly, top-line revenue growth was more than double overall economic growth.  Among the firms analyzed, the average year-on-year fourth-quarter revenue growth was nearly 9 percent, with the median result at 6 percent. This is more than double the expected rate of overall U.S. economic growth that quarter of 2.4 percent, as reported by CNBC and Moody’s Analytics.

Capacity Utilization Growing at Fastest Rate in Six Years

Capacity utilization of durable goods was 76.1 percent in January, which was the sixth month in a row with a rate greater than 76 percent. Virtually every month since August for every sector of manufacturing was revised higher. That’s good news for capital equipment consumption.

January’s one-month rate of change was 2.5 percent, which was the slowest rate of growth since July 2018. Annual growth in durable-goods capacity utilization reached 2.3 percent, accelerating for the eighth consecutive month to its fastest rate since March 2013. Again, that’s good news for capital equipment consumption. The annual rate of growth in durable-goods capacity utilization tends to lead capital equipment consumption by seven to 10 months.

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World Machine Tool Survey

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