Gardner Intelligence Blog

Capacity Utilization Contraction Slowing

Capacity Utilization Contraction Slowing

In September, durable goods capacity utilization was 69.4%, which was the third month in a row that the rate of capacity utilization was at least 69.4%. Compared with one year ago, capacity utilization contracted 7.5%, which was the fifth straight month that the month-over-month rate of change contracted at a slower rate and the slowest rate of contraction since February. 

The annual change in durable goods capacity utilization contracted at an accelerating rate for the 11th month in a row, falling to -9.3% from -8.9%. September was the fastest rate of annual contraction since March 2010. As the annual rate of change tends to lead capital equipment consumption by seven-to-10 months, capacity utilization is signaling accelerating contraction in capital equipment spending through at least the fourth quarter of 2020 and possibly into the first quarter of 2021.

Real 10-Yr Rate Grinding Slowly Higher

Real 10-Yr Rate Grinding Slowly Higher

In September, the nominal 10-year Treasury rate was 0.68%, which was the third lowest rate ever and just above the previous two months. Also, it was the seventh month in a row and the seventh month ever that the monthly average was below 1%. So, the nominal 10-year Treasury rate was at or hovered near its all-time lows for seven straight months.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.76%. This was the ninth consecutive month and 12th of the last 14 that the real rate was negative. However, the rate was grinding slowly higher since April.  

Bottom in Machine Tool Orders in Sight

Bottom in Machine Tool Orders in Sight

August machine tool orders were 1,679 units and $289,417,000.

August’s unit orders contracted 19.2% compared with one year ago, which was noticeably faster than the previous two months. However, the annual rate of contraction was 19.6%, which was the first month of decelerating since December 2019. The rate has contracted for 12 months, accelerating for seven consecutive months. It appears that the annual rate of contraction bottomed in July.

Durable Goods New Orders Nearing a Bottom

Durable Goods New Orders Nearing a Bottom

New orders for real durable goods totaled $232,626 million in August. This was 7.0% less than one year ago. The month-over-month rate of contraction peaked in April at 31.3%. 

The result was that the annual rate of change contracted 9.9%, which was the fastest rate of annual contraction since April 2010. However, consumer durable goods spending hit an all-time high for three months straight. Therefore, consumer durable goods spending is indicating a bottom in the rate of contraction in durable goods new orders may be near. 

Disposable Income Growth Above Average for 5th Month

Disposable Income Growth Above Average for 5th Month

In August, real disposable income was $15,499 billion. This was the fourth straight month that the level of real disposable income declined. This is extremely unusual historically, but it is a direct result of the initial round of stimulus checks and extended unemployment benefits during the early months of the pandemic. Also, August income was 3.9% more than one year ago, which was faster month-over-month growth than the historic average. However, the one-month rate of growth decelerated for the fourth consecutive month.

All of the above is due to government transfer payments such as expanded unemployment insurance and government stimulus checks. Government transfer payments have accounted for at least 36% of all income in April. Prior to April, government transfer payments accounted for no more than 27% of income.

Reports

Top Shops

‘Top Shops’ is a benchmarking and recognition program designed to help shops build their business.

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.