Gardner Intelligence Blog

Income Growth Strong but Down from April

Income Growth Strong but Down from April

In May, real disposable income was $16,154 billion, which was 8.2% more than one year ago. This was the second-highest level of real disposable income ever. However, it was more than $800 billion lower than the income level in April because of lower transfer payments less in May than April. The 8.2% growth rate in May was more than 2.5 times the historic average month-over-month growth rate in real disposable income. Clearly, the month-over-month growth is a direct result of government payments to individuals. Will these payments continue? If not, how far will disposable income fall?

The annual rate of growth accelerated to 3.8%. This was the fastest rate of annual growth since January 2019. Normally, this kind of acceleration would lead to a dramatic increase in consumer spending. However, this clearly has not happened since the start of the pandemic. Keep in mind that changes in real disposable income typically lead capital equipment consumption by almost 24 months.

June Gardner Business Index: 44.7

June’s reading of 44.7 brought the Gardner Business closer to a reading of ‘50’ for a second month. Rising readings that are below 50 indicate a slowing rate of contracting business activity. Stated differently, the June data indicate that a shrinking proportion of manufacturers experienced worsening conditions and a growing proportion experienced unchanging or improving conditions relative to May.  This situation was also true of May’s results as compared to April’s. Recent activity reported by broad economic indicators of the economy including a rebound in consumption spending and a precipitous drop in weekly initial claims for unemployment since late-March support the impression that the economy is nearing the ‘bottom’ of the decline caused the initial costs brought on by COVID-19.

Gardner’s survey data found several bright spots including the first expansionary reading of overall business conditions as reported by firms between 100 and 250 employees in size.  This category of manufacturers reported a strong expansion in new orders and production in June as compared to May.  This group also reported a smaller expansion in employment activity.  In contrast, backlog and export order activity reported slowing contraction as their results moved higher but remained below ‘50’.

Housing Permits Contract More Than 15% for Second Month

Housing Permits Contract More Than 15% for Second Month

There were 105,100 housing permits filed in May 2020, climbing above 100,000 permits after one month under that level in April. Permits filed in May were down 15.4% compared with one year ago, which was the second month in a row with contraction more than 15%. In May, the annual rate of growth decelerated to 4.4%, which made it the ninth-straight month of growth but the second month of decelerating growth.  

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.98%. This was the fifth consecutive month and eight of the last 10 that the real rate was negative. The real rate would have been even lower except the inflation rate has fallen significantly. In May, the annual rate of inflation was just 0.12%, which was the lowest rate since September 2015. In May, the year-over-year change in the real rate was -121 basis points. The change was negative for the 17th month in a row.

Gardner Intelligence Offers Its Electronics End-Market Webinar Free Online

If you were unable to attend Gardner Intelligence’s webinar discussing the Electronics market including a 2020/2021 forecast you can still watch it using the link below.

As always, the Intelligence team used its ‘3-lenses’ approach to make sense of what is happening in the electronics industry.  By layering the insights from our proprietary Gardner Business Index data, financial data with public-company forecasts from Wall Street analysts and macroeconomic data we can evaluate and share the story as told by the data.  We look at where the data agree and disagree and use that to build the best possible framework for understanding this and other critical end-markets serviced by the manufacturing sector.

Capacity Utilization: All End Markets Contracting Faster

Capacity Utilization: All End Markets Contracting Faster

In May, durable goods capacity utilization was 57.1%, which was a modest improvement over April. Compared with one year ago, capacity utilization contracted 24.4%, which was the third fastest rate of month-over-month contraction ever. This was the 12th month in a row and the 13th of the last 14 months that capacity utilization contracted. 

The annual change in durable goods capacity utilization contracted at an accelerating rate for the seventh month in a row, falling to -6.5% from -4.5%. May was the fastest rate of annual contraction since April 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 into the third quarter of 2020 and likely through the remainder of the year.


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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.