Gardner Intelligence Blog

Durable Goods Spending Continued Torrid Growth in February

Durable Goods Spending Continued Torrid Growth in February

In February, real consumer durable goods spending was $2,106.6 billion. Compared with one year ago, durable goods spending increased 16.1%, which was the fastest rate of month-over-month growth since October 1998 except for last month. In the eight of the last nine months, month-over-month growth was more than 11%. The only exception was December when the growth rate was still almost 9%, nearly double the historic average. The annual rate of growth accelerated for the ninth straight month to 8.2%, which was the fastest rate of growth since September 2015.

While durable goods spending grew at an accelerating rate since the economic lockdowns started, total consumer spending contracted at an accelerating rate (total consumer spending contracted at an annual rate of 4.6% in February). Durable goods spending accounted for more than 16% of total consumer spending for the second month in a row. Multi-decade trends show that durable goods spending steadily increased its share of total consumer spending while services decreased its shares. While the workforce may be trending toward a service economy, consumer spending is trending toward a manufacturing economy.

Disposable Income Growth Slows to a More Normal Rate

Disposable Income Growth Slows to a More Normal Rate

In February, real disposable income was $17,678,172 (millions of USD, SAAR). This was 8% below January’s income. Of course, the large drop in February from January was due to the stimulus payments in January. However, it was still higher than the disposable income for any month since July 2020. Compared with one year ago, disposable income increased 3.4%, which was slightly more than the historical average month-over-month growth.

The annual rate of growth in real disposable income accelerated to 6.9% in February. This was more than double the historic average growth rate and was the fastest rate of annual growth since October 1973. Unless there is more stimulus, then real disposable income is likely near its peak rate of growth.

Cutting Tool Orders Sluggish in January

Cutting Tool Orders Sluggish in January

In January 2021, real cutting tool orders were $152.2 million, contracting 23.0% from January 2020. This was the second-fastest rate of contraction since August 2020. It is likely that the January orders were affected by shift and/or plant shut downs in the automotive industry due to a lack of computer chips. Also, it should be expected that February order totals will be somewhat sluggish for the same reason in addition to the deep freeze from Texas through much of the Midwest. January was the 23rd consecutive month of month-over-month contraction, but these same figures clearly show that the contraction is slowing. Further, starting in April, the month-over-month comparisons get much easier.

The annual rate of change contracted at an accelerating rate for the 16th month. The annual rate of contraction was 23.8%, which was the fastest rate of annual contraction since the data was made public. The annual rate of contraction will likely accelerate a little through the March data release. Near the end of the first quarter, the annual rate of contraction should begin decelerating.

Automotive Industry Production Data Illustrates Magnitude of Current Supply Chain Crisis

For several months now it has been widely reported that supply chains are snarled across the globe.  Logistics channels are overwhelmed, leading to delays in the movement of goods both domestically and internationally.  Ships filled with goods are spending days harboring nearby, waiting to off-load their cargoes.  A lack of empty containers elsewhere means that goods cannot even leave the factory to begin their journey.  Added to this are the recent weather challenges in the South-central U.S. which have caused further delays and shutdowns of facilities that produce critical computer chips for the automotive industry.

A plant fire on Friday, March 18th, forced the shutdown of a chip making facility located northeast of Tokyo.  The shutdown is expected to last at least one month, further restricting the availability of the chips that are desperately needed by the automotive industry.  The sum of the auto industry’s challenges become clearly apparent when looking at U.S. Domestic Automotive Production.  In the two years leading up to the pandemic, production averaged over 220,000 vehicles monthly.  This contrasts with the data collected during the latest two months ending January 2021.  In this latest period, production averaged 157,000 per month —down from 196,000 a year ago — representing a 20% decline in unit count production.

The Federal Reserve’s Blunt Tools for Managing Interest Rates Lack the Precision to Achieve Post-COVID Economic Goals

Author’s Preface:  I started this piece never anticipating that it would reach over 1,200 words or have me referencing economics textbooks.  For this reason, I will share with you my conclusion in brief:  The last 25-years of data of the Federal Reserve Bank’s Fed Funds rate, corporate loan rates, inflation and economic growth testify to the complexities of the modern financial system.  The data reviewed in this piece provide recent examples of just how unpredictable the economy can be and just how little control the Fed has when trying to construct a particular economic outcome.  Recent communications by the Federal Reserve indicate that they will let the economy run “hot” and allow inflation to rise above 2% for a determined amount of time before throttling back the economy to the point at which inflation falls to 2%.  Such a plan is bold, ambitious and desirable, but almost certainly beyond the ability of the best minds when they have only blunt tools at their disposal and are exposed to the independent actions of governments and other large financial actors which act in ways that frequently and significantly impact the economic landscape in their own right.

Borrowing costs in 1Q2021 have been rising after spending 2020 at multi-decade lows.  The historical fall was in part driven by the Federal Reserve Bank’s (“The Fed’s”) relentless push to lower the cost of borrowing money (that is, the interest rate paid on a loan) and by extension encourage businesses and consumers to “pull forward” their consumption, thereby bolstering the economy in the near-term.  Lower interest rates both make a wider range of investments profitable, and increase an already profitable investment’s return.  It is for this reason that the Federal Reserve at certain times adjusts the Fed Funds rate which indirectly influences other interest rates in the same direction and in doing so either encourages (by downwardly influencing loan rates) or discourages (by influencing rates to move higher) firms from borrowing and spending capital.


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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.

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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.