In July, the nominal 10-year Treasury rate was 1.32%, which was the lowest rate since February. Of course, historically, the current rate is extremely low. The average 10-year Treasury rate since April 1953 was 5.93%, which hasn’t been seen since July 2000. So, nearly two decades below average tells you that the rate prior to July 2000 was well above average.

While the nominal 10-year Treasury rate was down slightly, the real 10-year Treasury rate fell to its lowest rate since June 1980. The reason for this was that the rate of inflation was above 5% for the second consecutive month just 2 basis points from the highest rate of inflation since August 2008. As the real 10-year Treasury rate is the nominal rate minus the inflation rate, the real 10-year Treasury rate was -4.05% in July. Instead of pushing nominal rates into negative territory, the Fed is using higher inflation to make real rates negative. This is very stimulative to the economy.

The year-over-year change in the real 10-year Treasury, now -368 basis points, was slightly less negative than last month. However, the change was less than -350 basis points for the third straight month, and the change was negative for 22 of the last 24 months.

As much as the absolute level of interest rates, it is the relative change in interest rates that drives additional borrowing and spending. A falling change in the real 10-year Treasury rate tends to be a positive signal for durable goods manufacturing. Falling changes in the real 10-year Treasury rate tend to lead to expansion in durable goods new orders and capital equipment consumption by a relatively long period of time – historically, between 12 and 24 months. The falling change in the 10-year Treasury rate is a good leading indicator of future growth in housing permits, construction spending and consumer durable goods spending as well.