The Economy Remains on Positive Ground

By | December 9, 2019

Welcome to FTR’s “Monday Morning Coffee “ blog. The following article is designed to keep busy executives up to date with the latest economic data releases. Released every Monday, this blog promises to keep our clientele updated with the latest weekly economic news and developments, highlighting its impact on the transportation, freight, and equipment markets. Hopefully, this will be an informative addition to the fine body of work associated with FTR.

Overview

World shares ticked up on Friday buoyed by comments from U.S. President Donald Trump that talks aimed at dialing down the damaging trade war with China are ”moving right along.”  The MSCI world equity index, which tracks shares in 47 countries, added 0.2% on Friday to 554.91 points, not far from the record high of 550.63 hit last January, but still on track for a weekly fall. Investors are hoping the two sides can reach a compromise to at least avoid their worst fear: that the United States goes ahead with their batch of tariffs on about $156 billion of Chinese exports, due to take effect Dec.15.

U.S. stocks closed sharply higher on Friday with the Dow Jones Industrial Average posting its best day in two months, after the employment report exceeded expectations. The report showed 266,000 jobs created, the most since January and the unemployment rate fell to 3.5%. The Dow rose by 1.22%, or 337.27 point to 28,015.06. The S&P rose 28.38 points, or 0.9% to 3,145.91. For the week, the Dow lost 0.1% and the S&P gained 0.2%. China’s State Council said on Friday, that it would exempt some soybeans and pork imported from the U.S. from import tariffs, a move that indicates atrial progress on the trade pact. Wall Street is likely to see more volatility ahead of the Dec. 15 deadline.

Hiring came roaring back, with the addition of 266,000 new jobs, a sign that the U.S. economy is withstanding the global slowdown and continued trade-related uncertainty. Manufacturing employment rebounded in November, in part a reversal of the losses during the UAW strike. In general, manufacturing remains weak, with the ISM manufacturing index rising in November, but remaining in negative territory for a fourth month. There is little hope of a near-term rebound as the new orders index slipped to tie August at the lowest point since the recovery began.

The service sector is holding up better, with the ISM non-manufacturing index remaining in expansionary territory ad new orders pointing to further expansion. That and strong employment growth, are allaying fears that the weakness in manufacturing is spreading to the service sector. There is an effect from trade as respondents from both surveys mentioned cost pressures coming from tariffs. This is corroborated by a 1.7% drop in October imports and concentrated in goods imports. Overall, trade in goods with China continues to fall as negotiations continue. Financial markets have been on a roller-coaster ride with good news concerning trade driving the markets upwards and negative news having the opposite effect.

Next week will be heavy on the economic calendar. We have the NFIB small business confidence report, CPI and PPI, retail sales and business inventories and the December FMOC meeting. The economy remains on positive ground, although differences remain on how strong the fourth quarter will hold up. The Atlanta Fed’s GDP tracker calls for 2.0% growth in Q4 and the New York Fed calls for growth of just 0.6%. A lot of developments are now waiting for December 15 for some more light to be cast on 2020.Coffee and Economic Review

Latest Data

The U.S. Economy:

September retail sales will be released on Wednesday, October 16 at 8:30 AM EDT.  After posting a soft August except for auto sales, we are looking for a 0.3% in sales for September. Sales excluding autos and gasoline are also projected to rise 0.3%.

The NFIB small business confidence index will be released on Tuesday, December 10 at 6:00 AM. The index is projected to rise from the current 102.4 level in October to 104.4 on better economic conditions and some positive news on ”phase-one” of the trade deal.

The November CPI report will be released on Wednesday, December 11 at 8:30 AM. Inflation picked up a notch in October, with the CPI rising 0.4% and the core index rose 0.2%. We expect a more modest increase of 0.2% for both the headline and core indexes in November.

The December FMOC meeting announcement will be on Wednesday, December 11 at 2:00 PM. After cutting rates the last three consecutive meetings, the FMOC will be on pause this meeting. We will be looking at the economic projections report, which includes a new “dot-plot” for hints of future monetary policy.

The November PPI report will be released on Thursday, December 12 at 8:30 AM. The PPI was also strong in October rising 0.4%. The increase was largely energy driven. For November, we see a more modest 0.2% increase.

The November retail sales report will be released on Friday, December 13 at 8:30 AM. Sales were decent last month, rising 0.3% in total and 0.2 excluding autos. We expect a 0.2% rise for both total sales and excluding the auto sector. The consumer is remaining solid and unit auto sales did perk up last month.

The October business inventories report will be released on Friday, December 13 at 8:30 AM. Business inventories fell 0.2% in September, as producers try and control excess stocks. We expect a 0.1% rise in October and the I/S ratio remaining unchanged.

International:

The official Chinese manufacturing PMI rose to 50.2 in November, up from 49.3 in October. The services PMI rose to 54.4, up from 52.8, a sign China’s economy is stabilizing. The Caixin/Markit manufacturing index came in at 51.8 in November, up slightly from 51.7 in October and did exceed expectations. That survey suggested that new business rose strongly and there was a solid rise in production. Exports saw the first back-to-back rise in a year and a half. Input costs rose marginally. Despite easing from October, new order growth remained solid, with a number of firms citing firmer underlying demand. Production rose at about the same pace as in October.

The euro-zone manufacturing PMI came in at 46.9 in November, up from October’s 45.9. Milder declines in new orders and output were recorded in November. The index remained below the 50 mark and extended the contraction phase to 10 months. The euro-zone services PI came in at 51.5 in November, down from 52.2 in October and was a 10-month low. The euro-zone composite index came in at 50.3 in November, down from 50.6 in October. The euro-zone economy remained close to stagnant for a third month in November.  There are signs the weakness in manufacturing is spreading to services. Output has been stagnant for three months. The ongoing decline in demand for goods and services is the worst since mid-2013.

Important Data Releases This Week

September retail sales will be released on Wednesday, October 16 at 8:30 AM EDT.  After posting a soft August except for auto sales, we are looking for a 0.3% in sales for September. Sales excluding autos and gasoline are also projected to rise 0.3%.

The NFIB small business confidence index will be released on Tuesday, December 10 at 6:00 AM. The index is projected to rise from the current 102.4 level in October to 104.4 on better economic conditions and some positive news on ”phase-one” of the trade deal.

The November CPI report will be released on Wednesday, December 11 at 8:30 AM. Inflation picked up a notch in October, with the CPI rising 0.4% and the core index rose 0.2%. We expect a more modest increase of 0.2% for both the headline and core indexes in November.

The December FMOC meeting announcement will be on Wednesday, December 11 at 2:00 PM. After cutting rates the last three consecutive meetings, the FMOC will be on pause this meeting. We will be looking at the economic projections report, which includes a new “dot-plot” for hints of future monetary policy.

The November PPI report will be released on Thursday, December 12 at 8:30 AM. The PPI was also strong in October rising 0.4%. The increase was largely energy driven. For November, we see a more modest 0.2% increase.

The November retail sales report will be released on Friday, December 13 at 8:30 AM. Sales were decent last month, rising 0.3% in total and 0.2 excluding autos. We expect a 0.2% rise for both total sales and excluding the auto sector. The consumer is remaining solid and unit auto sales did perk up last month.

The October business inventories report will be released on Friday, December 13 at 8:30 AM. Business inventories fell 0.2% in September, as producers try and control excess stocks. We expect a 0.1% rise in October and the I/S ratio remaining unchanged.


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About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.