Gardner Intelligence Blog

Disposable Income Revised Higher In June

In June 2019, real disposable income was $15,007 billion, which was its highest level ever and its first time above $15,000 billion. Recent income data was revised, accelerating the month-over-month growth rate compared with last month’s data release. In June, the month-over-month rate of growth was 3.3%, which was the 21st consecutive month of growth above the historical average. However, the rate of growth in 2019 was noticeably slower than the rate of growth in 2018.

The annual rate of growth decelerated to 3.6%, which was its slowest rate of growth since May 2018. Also, it was down from its peak rate of growth of 4.0% in December 2018. This is a dramatic difference from the May data release where the annual rate of growth was either 2.7% or 2.8% since January 2018. With noticeably slower growth since the beginning of the year , it is likely that the annual rate of growth in disposable income will decelerate more in the months ahead.

There were 110,100 housing permits filed in June 2019. This was the fourth consecutive month with more than 105,000 permits filed. However, permits contracted 9.5% month-over-month, which makes six-straight months of month-over-month contraction. As a result, the annual rate of change contracted at an accelerating rate for the second month in a row, falling to 1.4%. That’s the fastest rate of contraction in housing permits since September 2011.

That said, the 10-year Treasury rate is indicating that the direction of housing permits may turn around in 2019. In June, the year-over-year change in the real 10-year Treasury rate was -0.66%, which was the eighth consecutive month the change declined and the sixth-straight month the change was below zero. June’s change in the rate was the lowest since December 2017.

Durable Goods Production Reaches Highest Level Ever

In June, the index for production of durable goods was at 111.4, which was its highest level ever. The index increased 1.4% compared with one year ago, extending its growth streak to 31 months. However, the growth rate has slowed in recent months, falling below the historical average for the last five months. 

However, the annual rate of growth, which is easier to correlate with other data points, decelerated to 2.9%, down from 3.0% last month. This growth was slower than the peak annual growth of 3.5% in February, and it was the slowest rate of growth since July 2018. The annual rate of growth is likely to decelerate even more as the month-over-month rate of growth has been relatively weak the last five months. Further, the key leading indicator of production – durable goods new orders – is indicating slower growth in industrial production.

Capacity Utilization Hits Highest Point in 3 Months

In June, durable goods capacity utilization was 75.8%. While this was the highest rate of utilization in three months, June was down 0.1% compared with one year ago, and it was the second time in three months that the month-over-month rate of change contracted.

Annual growth in durable-goods capacity utilization decelerated to 2.0% from 2.2% last month. That is down from its peak of 2.8% in January and its slowest rate of growth since June 2018. As the annual rate of growth tends to lead capital equipment consumption by seven-to-10 months, it is signaling that capital equipment consumption will peak later this fall. However, as machine tool orders have already peaked, capacity utilization is signaling slower growth – if not contraction – for the remainder of 2019.

In June, the nominal 10-year Treasury rate declined for the eighth month in a row, dropping to 2.07% from a high of 3.15% in October 2018. This was the lowest nominal rate since October 2016. For the month of June, the nominal 10-year Treasury rate averaged 0.31% less than the Fed Funds Rate, which is the overnight lending rate. This is extremely unusual, and it indicates that the market believes a recession is ahead. 

The annual rate of inflation according to the CPI dropped below 2.00% for the sixth time in seven months. As a result, the real 10-year Treasury rate was -0.01%, which was the lowest real rate since January 2013 and the last time the real rate was negative.


Top Shops

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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.