Gardner Intelligence Blog

Durable Goods Spending Grows Nearly Twice the Historic Rate in December

In December, real consumer durable goods spending was $1,994.2 billion. This was the first month below $2,000.0 billion since June 2020. Still, the month-over-month rate of growth for durable goods spending was 9.5%, which was nearly double the historic average rate of growth and the eighth straight month of growth. This was the fastest, longest run of growth since the summer of 1999 in the middle of the dot com bubble. The annual rate of growth accelerated for the seventh straight month to 6.4%, which was the fastest rate of growth since December 2018.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.31%. This was the 12th consecutive month and 15th of the last 17 that the real rate was negative. However, the rate was grinding slowly higher since April.  December’s real rate was the highest since December 2019, which was the last time the real 10-year Treasury rate was positive.

Income Skyrocketing, Spending Crashing

Income Skyrocketing, Spending Crashing

In December, real disposable income was $15,458 billion. While disposable income was down from the depths of the pandemic, income was still 3.3% higher than one year ago. This rate of month-over-month growth was just below the historic average. The annual rate of growth, in a near-vertical climb, accelerated to 6.0%. This was the fastest rate of annual growth since March 1985.

Of course, the incredible growth in disposable income is solely due to government stimulus checks and extended and enhanced unemployment benefits as there have been record levels of initial jobless claims and entire industries virtually shut down since the start of the pandemic. The growth in income is likely to continue with another round of stimulus checks hitting in January 2021. Currently, the amount is $600, but there is a push to increase the amount by an additional $1,400.

The U.S. Government's Bureau of Economic Analysis (BEA) released its 4Q2020 GDP initial estimate on January 28th. The result was a 4% increase in GDP on an annualized basis. This follows the whipsaw -31% down then 33% up readings from the second and third quarters of 2020 respectively. Based on the latest data the economy shank by 3.5% overall in 2020.

One leading driver during the final quarter was industrial investment spending. Per the BEA's report: "The increase in exports primarily reflected an increase in goods (led by industrial supplies and materials). The increase in nonresidential fixed investment reflected increases in all components, led by equipment... The increase in residential fixed investment primarily reflected investment in new single-family housing. The increase in private inventory investment primarily reflected increases in manufacturing and in wholesale trade...".

Recall that the components of GDP include private consumption spending, investment spending, government spending and lastly net-exports. Breaking out the headline GDP figure by its components shows both where the economy grew and contracted:

Cutting Tool Orders Contract at Slowest Rate Since March 2020

Cutting Tool Orders Contract at Slowest Rate Since March 2020

In November 2020, real cutting tool orders were $151.3 million, contracting 20.7% from November 2019. However, this was the slowest rate of contraction since March 2020. November was the 21st consecutive month of month-over-month contraction, but these same figures clearly show that the contraction is slowing.

The annual rate of change contracted at an accelerating rate for the 14th month. The annual rate of contraction was 21.5%, which was the fastest rate of annual contraction since the data was made public. While the annual rate of contraction continued to accelerate, the one-month and three-month rates of change contracted at a slower rate, indicating that a bottom in the annual rate of contraction is near.

Federal Programs to Help People Handle Debts Creating Unusual Credit Market Signals

Default and debt past-due metrics for several types of loans are presently at multi-year historic lows, which is  anachronistic considering that the world is presently experiencing a global recession.  The history of finance and economics is, of course, replete with examples of borrowers failing to meet their debt obligations when economies stumble.  However, debt forbearance and other government aid policies enacted during 2020 have thus proven to be potent — at least from a macroeconomic perspective — at keeping a far worse credit collapse scenario from unfolding.  However, data measuring other than the most severe forms of late-payment and delinquent debts are still flashing warning signals.  What should be done as a result of this is a difficult but essential question the country must answer.

Two credit markets that were significantly altered through government intervention in 2020 included the housing and student loan debt markets.  The default rates for both drastically changed in the six months following the start of the pandemic.  Delinquent (loans with payments 90-days or more past due) student loan debt fell from 10.75% to 6.5% of all such loans, a rate last observed in early 2005. In a similarly aggressive manner, delinquent mortgages were nearly cut in half while the percentage of mortgages 30-89 days past due remained largely unchanged.  The steep fall in the rate of delinquent debts suggests that federal programs had, and continue to have, the intended affect of protecting those who were immediately vulnerable to the financial shocks caused by COVID.  In fact, the Wall Street Journal article “Saved Stimulus Checks Expected to Help Spur Economic Recovery” published on January 25th, 2021, reported that 34% of first stimulus checks were used to pay down debt, second only to saving them at 36%.   

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