The key leading indicator of production – durable goods new orders – is indicating slower growth in industrial production.

The GBI: Metalworking backlog index tends to lead the annual rate of change in capacity utilization by seven-to-10 months. It has contracted since March and is indicating that capacity utilization will contract into 2020.

The GBI: Metalworking has been a negative leading indicator for future machine tool orders for a number of months. There are some signs that the index’s rate of contraction may be approaching a bottom, but it will take another couple of months to determine that. It is likely that machine tool orders will contract overall in 2020.

The low change in the real 10-year Treasury rate tends to be a positive signal for durable goods manufacturing. Changes in the real 10-year Treasury rate tend to lead durable goods new orders and capital equipment consumption by a relatively long period of time – historically, between 12 and 24 months.

The rate of growth in consumer durable goods spending appears to have hit at at least a temporary bottom. At the very least, this should cause the rate of contraction in durable goods new orders to moderate, if not bottom out, around the end of the first quarter.