Gardner Intelligence Blog

Housing Permit Growth Slowing

There were 96,900 housing permits filed in January 2019, the second fewest housing permits since February 2018. January’s total was the third straight month of month-over-month growth; however, the monthly rate of growth was barely above zero. Compared with one year ago, January’s permits increased 0.2 percent, which was the second consecutive month of decelerating growth. Additionally, January had the slowest rate of annual growth since May 2017.

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 housing permits as well as manufacturing, durable goods and capital equipment. 

Growth in Capacity Utilization Reacts to Backlogs

One month after growing at its fastest rate in six years, growth in durable goods capacity utilization seems to be slowing. In February, durable goods capacity utilization was 76.1 percent , which was the seventh month in a row with a rate greater than 76 percent. However, compared with one year ago, capacity utilization increased just 1.0 percent, making February the second consecutive month of decelerating growth.

Annual growth in durable-goods capacity utilization decelerated to 2.2 percent, ending a streak of eight-straight months of accelerating growth. The annual rate of growth in durable-goods capacity utilization tends to lead capital equipment consumption by seven to 10 months. Therefore, this indicator alone is signaling that capital equipment consumption will peak later this summer.

Production Index May Signal Peak Durable Goods Growth

In February, the index for production of durable goods was at 108.1. While the index was up noticeably from the last three months, February’s index grew just 2.5 compared with one year ago. That was the second straight month of decelerating growth and the slowest month-over-month rate of growth since May 2018. 

The annual rate of growth, which is easier to correlate with other data points, was unchanged in February, which ended a streak of eight-consecutive months of accelerating growth. It is likely that this will mark the peak of growth for durable goods industrial production

Real 10-Year Treasury Rate Falls for Second Month

The nominal 10-year Treasury rate has declined for the fourth month in a row, dropping to 2.68 percent from a high of 3.15 percent in October 2018. This was the lowest nominal rate since January 2018. At the same time, the annual rate of inflation according to the CPI has dropped, too. In February, the annual CPI was 1.52 percent, which was down nearly 50 percent from its high of 2.95 percent in July 2018. The result was a real 10-year Treasury rate of 34 basis points, which was just 3 basis points higher than last month.

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 manufacturing, durable goods and capital equipment. 

Cutting Tool Orders Started Strong in 2019

In January, cutting-tool orders were $208.3 million, which was the 10th time in 11 months that orders were more than $200 million. Rebounding from a relatively weak December, January orders increased 9.7 percent compared with one year ago. January’s order total pushed the annual rate of growth up to 10.3 percent, which was the fourth month in the last five with annual growth faster than 10 percent. 

However, it seems that slower growth is ahead in 2019. The one-month rate of growth was below 10 percent for the third time in four months. That alone will cause the annual rate growth to slow from its current rate. Also, the GBI: Metalworking is a good leading indicator of cutting-tool orders, and while the rate of growth in the Index has decelerated, which typically signals decelerating growth in cutting tool orders, the Index has remained at a very high level since early 2017. The consistently strong growth at metalworking facilities is a likely reason for the recent surge in cutting tool orders, but with the GBI leading cutting tool orders by seven-to-10 months, it is likely that the annual rate of growth in cutting tool orders will decelerate soon.

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