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January Machine Tool Sales – 14% More Units Sold in January 2010 Than January 2009
Per USMTC, January machine tool sales were 791 units. This was about 35% lower than December 2009, but this should have been expected as it was the end of a quarter, the end of a year, and accelerated depreciation was coming to an end. While sales were low compared to December, there were 14.0% more units sold in January 2010 than were sold in January 2009. While last January’s unit sales were most likely the lowest in history, we should still view an increase of 14.0% as a significant improvement in the machine tool market, especially since it was the first such increase since September 2008. Even better was the improvement in dollar sales. Real dollar sales were 37.7% higher this January than last January. Looked at another way, unit sales in January 2010 were only higher than two months in 2009 but real dollar sales in January were virtually equal to or higher than all but three months in 2009. This is an indication that demand is picking up and pricing power is returning to the builders and distributors.
My forecast for January was for 775 units to be sold. Therefore, my forecast was too low by just 2.0% – a much better start than last year. Also, this marks the fourth straight month that my forecast has been too low, which I take as a positive sign for the industry.
Fed Funds Rate
The target for the Fed funds rate continues to be 0-0.25%. All indications are that it will stay there for the foreseeable future. Therefore, the year-over-year change in basis points is virtually zero and should remain there for some time. There are only two other times when the year-over-year change stayed flat for a significant period of time and neither can help us draw any conclusions about what will happen now. More important than the Fed funds rate, the Fed is trying to walk a very thin tightrope of not removing too much liquidity so the economy doesn’t fall again but not pumping out so much liquidity that inflation doesn’t pick up. I heard a Fed economist speak last month and he noted this exact problem while saying that the Fed has never done it successfully in its history. How about that for a ringing endorsement of the Fed’s plan? So, keep an eye on the Fed stopping its purchases of mortgage-backed securities (those purchases stop at the end of March) and other programs that have increased liquidity.
Real Personal Income excluding Government Transfers
The actual level of real personal income excluding government transfers has remained virtually flat since June 2009. The 12-month rate of change curve appears to have bottomed. While it will most likely show slower contraction in incomes in the near term, we will not see the curve move significantly above zero if we do not see any improvement in the actual levels of income. And, just so you know, while actual incomes remain flat the percentage of income that is government transfers continues to go up.
Real Household Debt Flow
You will notice a change in the chart this month. Rate of change curves are not usable when a statistic can be both positive and negative. Because household debt flow has been negative for an extended period of time for the first time in the government’s data, the rate of change curve doesn’t really work. However, we do know from past months that changes in household debt flow lead changes in real consumer durable goods spending. I’ve changed the chart to show the actual level of real household debt flow compared to the actual level in real consumer durable goods spending. During the massive run up in consumer durable goods spending since 1992, households borrowed more and more money each quarter. In mid 1996 the increase in household debt flow started falling dramatically until it started contracting in the second half of 1998. This is the first time that household debt flow has been negative for more than one quarter since the data has been collected. If the flow continues to be negative it will hold back consumer durable goods spending.
Real Consumer Durable Goods and Real Consumer Spending
Real consumer durable goods spending has grown month-over-month four out of the last five months although it has been pretty flat since July 2009. Real consumer spending has followed a similar pattern but it has seen a little more growth recently. The 12-month rate of change curves are still showing a decelerating contraction, but if spending just remains flat for a couple more months then the curves will start to show growth. I’m still concerned that none of the three leading indicators I track are pointing towards increased spending.
Real Total Capital Goods Orders
Close observers of the charts will notice another change here. Previously I only had about 20 years worth of historical data for capital goods orders. I was able to get some more historical data but it is based on SIC instead of NAICS codes (this change happened in the early 90s). Also, I had to estimate the historical inflation factor for capital goods orders. But, the result seems to make sense. Capital goods orders are highly seasonal so it is hard to detect a trend by looking at recent months. However, the nominal data for January shows that orders were 16.6% higher than they were in January 2009. So, real capital goods orders should be higher month over month for the first time since June 2008.
Consumer Durable Goods and Capital Goods Industrial Production
Consumer durable goods industrial production in February was up 10.0% compared to February 2009 but since August 2009 the index has been virtually flat. In the first half of 2009, consumer durable goods industrial production fell to, and stayed at, a level last seen around 1995. Since August, it has been running about 10% higher than it did in the first part of 2009 but is still at a level consistent with production in 1997. The rate of change curve continues to follow the curve for real consumer durable goods spending. The significant move off the bottom is why machine tool sales have started to pick up. Capital goods industrial production is lagging the trend in consumer durable goods industrial production a little bit. February capital goods industrial production was virtually flat compared to February 2009 and the bounce off the bottom has been smaller. Otherwise, the pattern has been similar to consumer durable goods industrial production.
gardnerweb.com/forecast/durablegoods.htm
Monetary Base and Debt-to-GDP Ratio
The monetary base continues to swing wildly. The 1-month rate of change bottomed at 16.2% last month but now it is back up to 35.3%. Wild fluctuations in the monetary base make it difficult for businesses to plan for the future. Also, the surge in the monetary base indicates significant inflation, although not necessarily in the prices of everyday items.
The debt-to-GDP ratio has fallen for three straight quarters and the trend is quite obvious on the chart. GDP is still lower than it was at its peak so the decrease in the ratio has more to do with debt contraction. Households, financial institutions, and businesses are all contracting their level of debt relative to the size of the economy. While government is still expanding its debt relative to GDP, its ratio has begun to level off. Ultimately a lower ratio debt-to-GDP ratio is better, but it can be painful getting to the lower level.
gardnerweb.com/forecast/special.htm
Metalworking Business Index
February MBI at 52.5 – Growth Slows
New Text Here.
gardnerweb.com/mbi/MBIResults.htm
Need more information?
Contact your GPI representative or
Steve Kline, Jr.
Director of Market Intelligence
Gardner Publications, Inc.
800-527-8837 • 513-527-8837
800-950-8020 • 513-527-8800
Fax: 513-527-8801
S2@gardnerweb.com
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