April machine tool orders were 1,349 units and $219,108,000.

April’s unit orders were the lowest monthly total since May 2010. Orders for the month contracted 36.9% compared with a year ago, which was the fastest month-over-month rate since October 2009. This was the 10^th month in a row of contraction and the eighth in the last nine with a rate of contraction faster than 20%. The annual rate of contraction accelerated for the fourth month in a row to -20.2%. This was the fastest rate of annual contraction since May 2010.

Dollar orders contracted 37.6% compared with one year ago. This was the 15^th straight month of dollar order contraction and the 16^th in the last 17 months. April was the 10^th month in a row of accelerating contraction in the annual rate of change in dollar orders as the rate of contraction fell to -24.0% from -22.2%. This was the fastest rate of contraction since May 2010.

Several of the early leading indicators of machine tool orders have trended in a positive direction for a number of months.

Year-over-year, the 10-year Treasury rate was trending lower since November 2018. In April, the year-over-year change was at its lowest level since the summer of 2012. Typically, the change in the 10-year Treasury rate leads machine tool orders by 12-24 months.

 

The 12-month rate of change in the monetary base started turning up in late 2019. This signaled that the 12-month rate of change in machine tool orders should bottom around the end of 2020.

 

 

A decline in the 12-month rate of change in the U.S. dollar’s broad exchange rate (a composite exchange rate against all other currencies) tends to lead machine tool orders since a lower exchange rate makes U.S. manufacturing exports cheaper around the world. The rate of change in the exchange rate started falling (rising on the chart) in June 2019. Given the 12-24 month lead time between the broad exchange rate and machine tool orders, this leading indicator was pointing to a bottom in the 12-month rate of change in machine tool orders in late 2020.

 

None of the short term leading indicators (Gardner Business Index, industrial production, and capacity utilization) have bottomed yet. If they bottom by June, then they would point to a bottom in the 12-month rate of change in machine tool orders starting in December 2020.

 

Finally, if unit orders stayed at the April level for the remainder of the year, then the annual rate of change in machine tool orders in December would be -32.9%. This is unlikely unless the orders approach the lows of the financial crisis. Even if orders average 1,000 units per month for the remainder of the year, which is a reasonable worst case scenario, the annual rate of change in machine tool orders would be -43.9%. However, if machine tool orders average 1,600 per month in the second half of the year, which was roughly the average level of unit orders in the first quarter, then the annual rate of change in December would be -25.9%. This third scenario would be very close to the average machine tool contraction for the last 50 years. And, machine tool orders would need to come in better than this third scenario in order for the annual rate of change to bottom by the end of the year.