Appliance Production Poised for Growth in 2016

Appliance production contracted for a roughly six-year stretch from mid-2005 to early 2012. But since then, thanks to significant reshoring of appliance manufacturing and an improved housing market, appliance production has been growing at a very significant and accelerating rate. Significant growth should continue in 2016. Here’s why.
 

•  Real 10-Yr Treasury Rate: The real 10-yr U.S. Treasury bond interest rate was 1.71% in August. The real rate was just three basis points lower than it was last month, which put an end to the streak of increasing rates in the previous six months. This was the second highest real 10-yr Treasury rate since April 2011. Also, this was the fourth month in a row that the year-over-year change in the real rate was positive. In August, the change in the real rate was the highest it has been since April 2014.

The nominal rate is still only about a third of its historical average. However, inflation is historically low: The current annual average is just 0.20% vs. a historical average of 4.13%. Therefore, the real inflation rate is about two-thirds of its historical average. Low inflation is keeping real rates relatively higher than in the past (remember, the real rate is the nominal rate minus inflation).

For months, the Federal Reserve had indicated a desire to raise interest rates. But, at the much-anticipated September meeting, the Fed decided against it. In fact, one Fed member thought the interest rates should be negative.

 •  Housing Permits: There were 98,300 housing permits filed in August. This broke a string of four months where housing permits were above 100,000. However, in only one month since August 2007 have housing permits been above the historical average.

Compared with a year ago, housing permits were up 8.9% in August, the ninth straight month of growth. The annual rate of growth has accelerated in three of the last four months, reaching 10.5% in August.

 •  Real Appliance Spending: Consumer spending on appliances has set an all-time high almost every single month in 2015. After a significant contraction in spending from 2007 to mid-2010, appliance spending has been growing at a very strong rate. Historically, the average growth rate is 4%. But the month-over-month rate of growth has been faster than in every month but two since January 2013. The current rate of month-over-month growth is nearly 50% above the historical average. As a result, the annual rate of change is growing at its fastest rate since May 2005.

 •  Appliance Industrial Production. While appliance production levels remain more than 10% below the level from 1995 to 2005, production has been growing since May 2012. The current rate of growth is the fastest in more than a decade. Other than a brief spike in early 2005, the current rate of growth is the fastest in nearly two decades. Based on housing permits and appliance spending, it looks like the trend of accelerating growth could continue into 2016. 

ABOUT THE AUTHOR: STEVE KLINE JR.

Steven Kline Jr. is part of the fourth-generation ownership team of Cincinnati-based Gardner Business Media, which is the publisher of Plastics Technology. He is currently the company’s director of market intelligence. Contact: (513) 527-8800  email: skline2@gardnerweb.com blog: gardnerweb.com/economics/blog