The annual rate of change in the GBI: Metalworking grew at an accelerating rate for the fourth consecutive month, indicating that the annual rate of contraction in cutting tool orders will continue to decelerate throughout 2021 as cutting tool orders continue to improve on a month by month basis.
Unlike many other economic data series, the rate of change in June 2021 was not affected by an easy comparison with June 2020. In fact, just the opposite. June 2020 was a very strong month for housing permits. Therefore, the 25.0% growth this June is a very strong rate of growth.
The rebound in the number of new manufacturing businesses since early 2020 has served as a powerful testimony to the strength and flexibility inherent to the manufacturing sector and capitalism. Not only have new business formations proven the flexibility of a free and open economy to overcome adversity, but also the ability of aspirational individuals and teams to create firms and ultimately jobs.
In June, durable goods capacity utilization was 74.0%. The annual change in durable goods capacity utilization grew at an accelerating rate for the second consecutive month. And, June had the fastest annual rate of growth since November 2012.
Compared with one year ago, the durable goods production index increased 12.2%, which was the fourth straight month of growth. The much stronger than normal growth is due to an easy comparison with last year when the country was just starting to exit lockdowns. The comparisons will get less easy each month.
Prices received by farms for a wide range of staple crops are at multi-year and in some instances multi-decade highs. The increased revenues and associated profits will bolster agriculture machinery and equipment purchases.
Gardner Intelligence’s supplier delivery data from the Gardner Business Index (GBI) has done a commendable job of monitoring the slipping of order-to-fulfillment times for upstream supplies used in manufacturing. As delivery times have lengthened, readings have correspondingly increased and have done so well beyond anything seen in recorded history. 2021 year-to-date survey data indicate that nearly all surveyed manufacturers in June reported slowing delivery times. In fact, the last 11 months of data have reported almost an unstoppable trend of month-over-month lengthening delivery times. One would think — or at least hope— that the worst must be behind us, right? The GBI: Supplier Delivery reading has reported higher month after month readings almost consistently since July 2020.
Many experts have been debating whether the current surge in inflation will be temporal or more permanent. When one moves from the theoretical realm to the reality of supply chains the picture becomes more concerning.
The rate of inflation increased to 5.39% in June, pushing the real 10-year Treasury rate to -3.87%. Declining real interest rates are typically a positive sign for durable goods manufacturing and capital equipment consumption.
Automotive industry news during the second quarter of the year was highly concentrated around the financials of the big automakers and the improved profits they generated thanks to strong pricing despite supply chain challenges which suppressed production levels at many factories in the United States and around the world. For this reason less attention was given to monthly volumes (at seasonally adjusted annual rates, SAAR). Production constraints aside, second quarter sales volumes were impressive, led by April’s 19.2 million units reading which then gave way to a May reading of 17.5 million.
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