Gardner Intelligence Blog

June 2020 A Strong Month for Machine Tool Orders

June 2020 A Strong Month for Machine Tool Orders

June machine tool orders were 2,149 units and $342,179,000.

June’s unit orders were the highest of 2020 and the third-highest since June 2019. Also, June was the first month with more than 2,000 units (more than 2,000 units is a strong month) since December 2019. June’s orders contracted 2.8% compared with one year ago, which was the third slowest rate of contraction in the last 13 months. The annual rate of contraction was 19.3%. The rate has contracted for 11 months, accelerating for six consecutive months.

Durable Goods Contraction Near Turn Upward

Durable Goods Contraction Near Turn Upward

New orders for real durable goods totaled $225,331 million in June. This was more 25-40% more than April and May when many states closed their economy. And, June’s durable goods orders were roughly equal to the average durable goods orders in the first quarter of 2020. However, durable goods orders were still 11.6% below June 2019. This was the slowest rate of contraction in the last four months.

The result was that the annual rate of change contracted 9.4%, which was the fastest rate of annual contraction since April 2010. However, the all-time high consumer durable goods spending in June means that durable goods new orders are indicating a bottom in the rate of contraction in durable goods new orders may be near. 

Consumer Durable Goods Spending Reaches All-Time High

Consumer Durable Goods Spending Reaches All-Time High

In June, real consumer durable goods spending was $1,986,298 million, which was an all-time high. The month-over-month rate of growth for durable goods spending was 11.7%, which was the fastest rate of growth since July 2005. 

The annual rate of growth accelerated for the first time since February. The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.84%. This was the sixth consecutive month and ninth of the last 11 that the real rate was negative. So far, lower interest rates have been enough to overcome lower incomes and boost durable goods spending. The question is will that continue without a significant increase in employment?

Disposable Income Growing, but for How Long?

Disposable Income Growing, but for How Long?

In June, real disposable income was $16,028 billion, which was 8.1% more than one year ago. While this was the third consecutive month (and the only three months ever) with income more than $16,000 billion, June income was down almost $1,000 billion from April. The 8.1% growth rate in June was more than 2.5 times the historic average month-over-month growth rate in real disposable income.

The extreme month-over-month rate of growth in disposable income is a direct result of government payments to individuals. Compensation from employees contracted more than 2.3% each of the last three months, which were the first months of contraction since January 2010. At the same time, government transfer payments (e.g. unemployment benefits, $1,200 stimulus checks) increased at least 58.1% each of the last three months. As a result, government transfer payments made up more than 25% of all U.S. disposable income for the third straight month.

July Business Index Reports Third Consecutive Month of Slowing Contraction

The Gardner Business Index at 47.6 registered a third month of slowing contraction for July. Rising readings below a level of 50 indicate a slowing rate of contracting business activity. This occurs when there is a decline in the proportion of manufacturers reporting worsening conditions relative to the prior month.  Of the six components which constitute the Index, only supplier deliveries registered above 50.  As explained previously in detail, the recent elevation in supplier delivery readings is a result of disrupted supply chains rather than the result of economic growth.  All other components registered slowing contraction led in absolute terms by new orders (up 4-points) and followed by production (up 3-points).  The reading for export activity also increased in July by nearly 4-points.  As domestic and international demand continue to show signs of improvement, other measures of business activity can be expected to improve in the coming months.  Historically, production lags new orders by one month while backlogs and employment activity lag new orders by two or more months.

All geographic regions of the U.S. reported slowing contraction for the month with the Northeast reporting the least level of economic contraction and the Southeast reporting the greatest.  The North Central East region comprising of Indiana, Kentucky, Michigan, Ohio and Tennessee reported the greatest change in activity during July with a 5-point gain.


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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.

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.