Gardner Intelligence Blog

The Plastics Industry Association (PLASTICS) presented the results from its 2019 Global Trends Report at the K-Show in Dusseldorf, Germany on October 17th.  PLASTICS Chief Economist Perc Pineda, along with the PLASTICS CEO Tony Radoszewski, discussed the challenges and opportunities facing the industry in the coming years. 

According to the Association, in the 12-month period ending second quarter 2019:

Durable Goods Production Contracts for First Time since 2016

In September, the index for production of durable goods was 109.2, which was down 0.4% from one year ago. This ended a streak of 33 consecutive months of growth in the durable goods production index. The annual rate of change, which is easier to correlate with other data points, grew 1.9% this month. However, the annual rate of growth decelerated for the seventh-straight month. September’s growth rate was the slowest since September 2017, and it is likely to decelerate even more, as the month-over-month rate of growth has been relatively weak the last six months. Further, the key leading indicator of production – durable goods new orders – is indicating slower growth in industrial production.

We track industrial production and its leading indicators for a number of industries.

Capacity Utilization Contraction Accelerates for Third Month

In September, durable goods capacity utilization was 75.4%, which was the slowest rate of durable goods capacity utilization since April. Compared with one year ago, capacity utilization contracted 1.9%. This was the third month in a row of accelerating contraction and the fastest rate of month-over-month contraction in three years.

Annual growth in capacity utilization of durable goods decelerated to 0.8% from 1.3% in September. That is down from its peak of 2.8% in January, and its slowest rate of growth since November 2017. As the annual rate of growth tends to lead capital equipment consumption by seven-to-10 months. Capacity utilization is signaling machine tool orders will contract for the remained of 2019 and into 2020.

Contraction in Cutting Tool Orders Accelerates

In August, cutting tool orders were $205.1 million, which was the highest level of orders since May. However, August orders contracted by 10.0% compared with one year ago, marking the sixth consecutive month of month-over-month contraction and the fastest rate of contraction since July 2016. The annual rate of growth decelerated for the seventh-straight month to 2.2%, which was the slowest rate of annual growth since June 2017. It is very likely that the annual rate of change in cutting tool orders will slide into contraction before the end of 2019.

The GBI: Metalworking is a good leading indicator of cutting tool orders. The rate of change in the Index began contracting in March and the contraction has accelerated since. In the last down turn in late 2015 and early 2016, the GBI: Metalworking contracted more than 10% year over year and so did cutting tool orders. It is likely that the GBI: Metalworking will see annual contraction of at least 10% in the next month or two. The Index is clearly indicating that the annual rate of growth in cutting tool orders will continue to decelerate, if not begin to contract, for the remainder of 2019. The GBI typically leads cutting tool orders by seven-to-10 months.

Real 10-Year Treasury Rate Continues Negative Trend

In September, the nominal 10-year Treasury rate inched higher for the first time in 10 months, rising to 1.70% from 1.63%. However, this was the second straight month the nominal rate was below 2.00% . September was the fourth month in a row that the nominal 10-year Treasury rate averaged less than the Fed Funds Rate, which is the overnight lending rate. The 10-year Treasury rate falling below the Fed Funds rate tends to indicate a recession is ahead.

The annual rate of inflation according to the CPI was below 2.00% for the fifth month in a row ninth time in 10 months. As a result, the real 10-year Treasury rate was -0.15%. September was the third time in four months that the real 10-year Treasury rate was negative.

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.