Gardner Intelligence Blog

Durable Goods Spending Grows at 1.0 Percent

In January, the month-over-month rate of growth for durable goods spending was 1.0 percent, which was the fifth month in a row that the growth rate was below the historic average of 5.5 percent. January’s rate of growth was the slowest since August 2010, when the month-over-month change actually contracted. Further, December’s growth rate was revised to just 1.8 from 3.2 percent, and the annual rate of growth decelerated to 5.1 percent, decelerating for the fifth-straight month. This was the slowest rate of annual growth since July 2012. 

In February, the year-over-year change in the 10-year Treasury rate was -47 basis points, which was the second straight month the change was below zero and the lowest change since January 2018. It’s quite possible that the change in the 10-year Treasury rate has reversed course and is now a positive leading indicator for durable goods spending, manufacturing and capital equipment. 

February Sees 1,913 Machine Tool Orders

In February, machine tool unit orders were 1,913, which was the first month below 2,000 units – the minimum order total for a healthy machine tool market – since February 2018. This month’s unit orders were down 2.6 percent compared with last February. This was the third time in five months that the month-over-month rate of change contracted. As a result, the annual rate of growth decelerated for the fifth consecutive month, falling to the slowest rate of growth since September 2017.

Dollar orders performed worse than unit orders in January, contracting 8.1 percent compared with one year ago, the third contraction in five months. The annual rate of growth decelerated for the fifth month in a row to its slowest rate since February 2018.

The Gardner Business Index (GBI) registered 53.1 at the end of March, marking another month of modest growth. March’s reading resulted in a first quarter 2019 Index reading of 53.4. By comparison, at the peak of the business cycle which occurred during the first quarter of 2018, the Index’s quarterly reading registered 58.9. All Index readings above 50 indicate industry growth while values below 50 indicate a contracting industry, and a reading of exactly 50 indicates no change. Gardner Intelligence’s review of the underlying data for the month observed that the Index – calculated as an average of its components – was supported by supplier deliveries, production, new orders and employment. The components which lowered the Index included backlogs and exports. Both backlogs and exports contracted during March.

The latest expansionary figures for supplier deliveries and production are comparable to their respective readings captured during 2017, when the latest economic expansion was in its early stage. This contrasts with the latest expansionary readings for new orders and employment which have fallen below their comparable 2017 levels.

Wall Street’s latest forecast of the construction industry expects slowing revenue growth in the coming year.  However, earnings projections for commercial and industrial firms are expected to outperform those of residential construction segment.

After reaching new highs in mid-2018, the monthly trend in total put-in-place construction has been steadily falling. The preliminary January reading marked the first time since 2011 that total construction had fallen compared to the same month a year ago. This changing trend in construction has resulted in a significantly lower forecast for the construction industry in late 2019 as compared to the outlook from just six months ago.

Durable Goods Order Growth Should Slow to Start 2019

New orders for real durable goods in January totaled $231,014 million. Compared with one year ago, new orders grew 4.3 percent, which was the fastest rate of growth since October. Additionally, this was the seventh consecutive month of growth, though the annual rate of growth decelerated for the third month in a row from 5.6 to 5.5 percent. This was the slowest rate of annual growth since January 2018.

It seems clear that the rate of growth in new orders of durable goods has peaked and will grow slower heading into 2019. This becomes more likely when looking at the trend of real consumer durable-goods spending, a good leading indicator of real new orders in durable goods. Spending growth has slowed sharply the last couple of months, indicating slowing growth in new orders.

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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.

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A diffusion index measuring month-to-month changes in activity at durable goods and discrete parts manufacturing facilities.