Gardner Intelligence Blog

February Production Down Due to Supply Chain Disruption and Winter Storm

In February, the index for production of durable goods was 104.1. Compared with one year ago, the index contracted 3.8%, which was the first significant acceleration in contraction since the economy was locked down almost one year ago. Although, there were some extenuating circumstances in February. First, the winter storm in Texas and other parts of the midwest hindered production. Second, significant supply chain disruption, particularly regarding computer chips, forced a number of manufacturers to slow or stop production. One positive is that aerospace production grew for the first time since December 2019.

The annual rate of change, which is easier to correlate with other data points, contracted 9.4%. This was the 12th consecutive month of accelerating contraction. The key leading indicator of production – durable goods new orders – has bottomed out, according to its rate of change, and is indicating that production should do the same soon. Also, consumer durable goods spending, which leads durable goods new orders, grew more than 11% from June to November 2020, 9.5% in December 2020, and 16% in January. This seemingly means production needs to increase significantly to keep from eating too far into inventories.

Capacity Utilization Takes a Dip in February

Capacity Utilization Takes a Dip in February

In February, durable goods capacity utilization was 71.9%, which was the lowest rate of capacity utilization since October 2019. Some of this drop in this capacity utilization rate was due to the winter storm in the midwest and supply chain disruptions, particularly regarding computer chips. Compared with one year ago, capacity utilization contracted 4.0%, which was the fastest rate of contraction since September 2019. 

The annual change in durable goods capacity utilization contracted at an accelerating rate. The annual rate of contraction of 9.5% was the fastest since March 2010. However, it seems clear that the annual rate of change is bottoming out. As the annual rate of change tends to lead capital equipment consumption by seven to 10 months, capacity utilization is signaling a bottom in the annual rate of change in capital equipment about the second quarter of 2021.

Housing Permits Remain Red Hot in February

Housing Permits Remain Red Hot in February

There were 117,200 housing permits filed in February 2020, which was the highest total for February since 2006 (permits are seasonal). Permits filed in February increased 17.0% compared with one year ago. Housing permits grew eight of the last nine months, and in seven of those months, the growth was faster than 11.5%.

Regarding the annual rate of change, February was the 19th-straight month of growth and the 11th in the last 13 with growth faster than 5.0%. The annual rate of growth accelerated to 6.3%, which was its fastest rate since of growth July 2020.

Real 10-Year Treasury Rate Climbs into Positive Territory

Real 10-Year Treasury Rate Climbs into Positive Territory

In February, the nominal 10-year Treasury rate was 1.26%, which was the first time the rate was more than 1% since February 2020. The nominal rate trended higher for the seventh straight month and seems poised to rise again in March (as of this writing on March 12the rate reached as high as 1.65%).

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was 0.17%. The nominal rate is rising faster than the rate of inflation, which was 1.68% in February, according to the CPI. February was the first month since December 2019 that the real rate was above 0%.


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