The Fed is Content to Sit on the Sidelines for the Rest of the Year

By | November 25, 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

Coffee and Economic Review

Global stocks inched up on Friday, lifted by China’s renewed offer to work out a trade pact with Washington. Gains were tempered by uncertainty about ow the 16-month trade war plays out and how much it may undermine the global economy. European shares opened modestly higher, rising off of three-week lows on Thursday when it seemed U.S. legislation on Hong Kong would undermine trade talks. Economic growth in Europe looks increasingly fragile as the euro-zone compositive PMI fell to 50.3 from 50.6 as activity in the service sector was weaker than expected. Reflecting a sour attitude, the Organization for Economic Cooperation and Development said that global economic growth would grow at a decade low of 2.9% this year and next.

Wall Street advanced on Friday as both Washington and Beijing made positive contributions to the potential of a trade deal. The S&P and the Dow showed their biggest daily gains in a lackluster week marked by trade uncertainty. The U.S. flash PMI manufacturing  index rose to 52.2 in November, up from 51.3 in October, the strongest reading since April. The services PMI rose to 51.6 from 50.6. There was a rise in new orders in November and employment prospects brightened. The Dow Jones Industrial Average rose by 109.33 points, or 0.39% to 27,875.62 and the S&P rose 6.75 points, or 0.22% to 3,110.39. The S&P snapped its six-week winning streak and the Dow fell for the week for the first time in four weeks.

It was a light week for economic data. Minutes from the October FMOC meeting indicated the Fed is content to sit on the sidelines for the rest of the year and let the loser financial conditions resulting from the previous three cuts feed through the economy. Housing starts and existing homes sales rose solidly in October as lower mortgage rates are boosting residential activity. Next week will be light on the economic calendar but we do get a look at the Chicago Fed National Activity Index, International Trade in Goods, New Home Sales, Durable Goods Orders, Q3GDP second estimate and Personal Income and Outlays.

Latest Data

The U.S. Economy:

Housing starts increased by 3.8% in October to an annual pace of 1.314 million. Both single-family and multi-family housing starts had good increases for the month. Single-family starts increased 2.0% to 1.314 million, while the multi-family sector saw an 8.6% advance to 378,000. Future activity looks a little brighter, as total permits advanced 5.0% in October to an annual apace of 1.461 million. Single-family permits rose 3.2% to 909,0, while the multi-family sector saw an 8.2% rise to 5 52,000. Lower mortgage rates and solid consumer fundamentals are supporting housing activity. The market for existing homes is exceedingly tight. This should support a modest upward trend in single-family homes going forward.

Existing home sales increased 1.9% in October and are now near their peak earlier this year. Total sales came in at an annual rate of 5.46 million, up 4.6% from a year earlier. The increase was lopsided, with a strong increase in the South and slight decreases in the Northeast and West. Also, the gain was in single-family homes, with condo/co-op sales flat. The market for single-family sales continues to tighten. Listings totaled 1.56 million, down 2.5% from September and 4.3% from a year earlier. The inventory-to-sales ratio was 3.8 months, down 0.2 from September and 0.4 from a year ago. Thanks to the tight market, price growth is strong, up 6.2% from a year earlier. Sales have now recovered from last year’s rise in mortgage rates, but remain down from the 2017 peak. With pricing up, buyers may start to compete with new homes. This may help boost housing starts, which are starting to move up, but have been flat for several years.

The leading economic indicators suggest growth will weaken further. The index slipped 0.1% in October, following a 0.2% decline in September. October marked the third consecutive decline. The index normally declines year-over-year ahead of a recession. The index was still up 0.3% y/y. The index would have to decline a few more times to be troubling. The greatest negative contribution was from the ISM new orders index. Manufacturing has been struggling because of trade tariffs, the high dollar, slowing global growth and the UAW strike as of late. The labor market was also a drag on the index, including claims and the average workweek. Still, the job market seems fine, although slowing. Stock prices were a slight negative. Building permits were the biggest positive contributor to the index. It’s early, but the fourth quarter looks weak, tracking below 1%. However, some of the weights are lifting. Production should tick up as the strike has ended. Business confidence seems to have stabilized, but that won’t help spending. Financial markets are upbeat over prospects of a potential trade deal.

Important Data Releases This Week

Global stocks inched up on Friday, lifted by China’s renewed offer to work out a trade pact with Washington. Gains were tempered by uncertainty about ow the 16-month trade war plays out and how much it may undermine the global economy. European shares opened modestly higher, rising off of three-week lows on Thursday when it seemed U.S. legislation on Hong Kong would undermine trade talks. Economic growth in Europe looks increasingly fragile as the euro-zone compositive PMI fell to 50.3 from 50.6 as activity in the service sector was weaker than expected. Reflecting a sour attitude, the Organization for Economic Cooperation and Development said that global economic growth would grow at a decade low of 2.9% this year and next.

Wall Street advanced on Friday as both Washington and Beijing made positive contributions to the potential of a trade deal. The S&P and the Dow showed their biggest daily gains in a lackluster week marked by trade uncertainty. The U.S. flash PMI manufacturing  index rose to 52.2 in November, up from 51.3 in October, the strongest reading since April. The services PMI rose to 51.6 from 50.6. There was a rise in new orders in November and employment prospects brightened. The Dow Jones Industrial Average rose by 109.33 points, or 0.39% to 27,875.62 and the S&P rose 6.75 points, or 0.22% to 3,110.39. The S&P snapped its six-week winning streak and the Dow fell for the week for the first time in four weeks.

It was a light week for economic data. Minutes from the October FMOC meeting indicated the Fed is content to sit on the sidelines for the rest of the year and let the loser financial conditions resulting from the previous three cuts feed through the economy. Housing starts and existing homes sales rose solidly in October as lower mortgage rates are boosting residential activity. Next week will be light on the economic calendar but we do get a look at the Chicago Fed National Activity Index, International Trade in Goods, New Home Sales, Durable Goods Orders, Q3GDP second estimate and Personal Income and Outlays.


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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.

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