Gardner Intelligence Blog

The 2019 Capital Spending Report projects accelerating growth for the machine tool market in 2019. The latest data from Gardner Intelligence sees machine tool consumption increasing 11 percent to $7.748 billion in 2019, with growth occurring across all major machine types. This follows increases of 3 and 6 percent in 2017 and 2018 respectively.

In 2018, machine tool prices rose and delivery times lengthened as the demand for capital equipment outpaced the supply. Given the planned spending by machine shops detailed in the report, prices are likely to climb higher and delivery times will remain relatively long as demand remains strong. Of particular note, job shops and manufacturers in the North Central-West and Southeast regions are poised to experience the highest rates of growth in the country.

Housing Permits Contracted Three out of Four Months

There were 99,400 housing permits filed in September 2018. September was the first month with fewer than 100,000 new permits since February. Compared with one year ago, September’s permits were down 2.0 percent. This was the third time in four months that permits contracted compared with one year ago. The rate of annual growth was 5.9 percent, which was down from its peak of 7.9 percent in May. The last time the rate of annual growth in permits was this slow was October 2017.

In September, the year-over-year change in the 10-year Treasury rate was 43 basis points. This was the second month in a row that the change in the 10-year rate increased, and it was the highest level for the change since March 2016. The change in the 10-year rate is indicating an economic slowdown may occur in 2019. An increasing year-over-year change in the real 10-year Treasury rate is negative for housing permits because mortgages become relatively more expensive. Changes in the interest rate typically lead changes in housing permits by 12-14 months.

Capacity Utilization at Highest Rate Since July 2015

Durable goods capacity utilization was 76.3 percent in September 2018, the fastest rate since July 2015. The month-over-month rate of growth was 2.8 percent, which was the second fastest rate of growth since July 2014. Capacity utilization grew for the 14th consecutive month. The annual rate of growth accelerated for the fourth straight month, reaching its fastest rate of growth since June 2015. Throughout late 2017 and 2018, the growth rate in capacity utilization was relatively tepid given the strong growth in the GBI: Metalworking backlog index since late 2016. Perhaps we are seeing a delayed response in durable goods capacity utilization to the increase in backlogs. With backlogs still growing at a strong, albeit slower rate, capacity utilization should see accelerating growth through at least the end of 2018. 

The backlog index tends to lead capacity utilization by seven to 10 months, and capacity utilization tends to lead capital equipment consumption by seven to 10 months. Capacity utilization should peak in early 2019, which would lead to a peak in capital equipment consumption some time in the second half of 2019. 

Durable Goods Production Hits Second Highest Point Ever

In September, the durable goods production index was 108.8, which was the second highest level ever for index (June 2018 was the highest). Compared with one year ago, the index grew in 4.2 percent in September, which was the second fastest rate of growth since July 2014. The index grew for the 22nd month in a row with five of the last six months recording a growth rate faster than 3.0 percent. As a result, the annual rate of growth accelerated for the fourth straight month to 2.8 percent, which was the fastest rate of annual growth since February 2015.

In August, new orders of durable goods continued to grow at a strong rate, although the rate of growth was relatively flat since April. Durable goods new orders continued to indicate accelerating growth in durable goods industrial production.

Change in 10-Year Treasury Highest Since March 2016

In September, the year-over-year change in the 10-year Treasury rate was 43 basis points. This was the second month in a row that the change in the 10-year rate increased, and it was the highest level for the change since March 2016. The change in the 10-year rate is indicating an economic slow down may occur in 2019. Changes in the real 10-year Treasury rate tend to lead capital equipment consumption by a long period of time – historically, 12 to 18 months.

In September, the real 10-year Treasury rate was 0.58 percent, which was the first time the real rate increased since May. September was the 20th consecutive month the real rate was below 1.00 percent. However, the real rate increased because the nominal rate rose to 3.00 percent for the first time since July 2011 and the annual rate of inflation declined to its lowest level since February. remained relatively low due to the generally rising annual rate of inflation. However, even at this level, the nominal rate was still less than half its historical average of 6.15 percent. Amazingly, we have not seen average interest rates since May 2000.

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Reports

Top Shops

‘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.