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.
World shares dipped on Friday, with concerns that U.S. political developments against President Trump will dent optimism about the easing of U.S.-China trade tensions, after a whistleblower complaint. MSCI’s world equity index, which tracks stocks in 47 countries, fell 0.1% on Friday and was on its way to its worst weekly performance since mid-August. Asia-Pacific shares outside Japan shed 0.2% on Friday and Europe’s STOXX 600 fared better on a quick resolution to the trade war. A whistleblower complaint released on Thursday said President Trump abused his office trying to solicit Ukraine’s interference in the 2020 elections for his political benefit and the White House tried to “lock down” evidence about their conduct. The market was trying to balance the ramifications of any possible impeachment of Trump against an apparent easing of trade tensions between Washington and Beijing. China’s top diplomat said on Thursday that China was willing to buy more U.S. products and that trade talks would yield results.
U.S. stocks fell on Friday after reports that the Trump administration was considering delisting Chinese companies from its stock exchange, raising worries about a further escalation of the trade war. The Dow Jones Industrial Average fell 70.87 points, or 0.26% to 26,820.25 and the S&P lost 15.83 points to 2,961.79. All three major indexes ended the week lower, with the S&P down by the biggest percent drops since August. Data early in the day showed that U.S. consumer spending barely rose in August. Consumer spending has been blunting some of the hit on the economy from the U.S.-China trade war, which has sunk business investment and manufacturing. Meantime, underlying inflation is firming, placing the Federal Reserve in a bind. The core PCE price index was up 1.8% in August, up from 1.7% in July.
This week’s economic reports reinforce the notion that U.S. economic growth continues to lose momentum. While slower growth overseas is responsible for much of the drag on U.S. growth, consumers and businesses are becoming more guarded about the outlook. The Conference Board’s index of consumer confidence fell by 9.1 points a still decent 125.1. On the business side, durable goods orders rose 0.2% in August, core capital goods orders declined 0.2% and July’s gain was erased. With consumer spending slowing and business investment on hold because of the trade war, the economy may be for rough waters, if the trade war breaks out anew. One dark part of the economy is looking brighter is housing. Both new and pending home sales perked up in August. Lower mortgage rates are finally having a positive effect on that sector of the economy.
Next week will be busy on the economic front. We get a look at the ISM manufacturing and non-manufacturing indexes, construction spending, motor vehicle sales, factory orders, employment and international trade.
The U.S. Economy:
The Chicago Fed National Activity Index shows that economic activity picked up in August. The index rose from -0.41 to 0.10. All four broad categories increased from the previous month, but three out of the four made negative contributions to the index. The three-month moving average increased from -0.14 to -0.06, the highest reading since January. Production-related indicators contributed 0.16 to the index in August. The sales, orders and inventories contributed -0.02, compared with July’s -0.07 contribution. Employment-related indicators contributed 0.02, compared with -0.05 for July. The personal consumption -0.02, following a -0.03. Industrial production rebounded in August, following July’s contraction. The labor market decelerated, however. Consumption remains strong. The overall index does show the economy growing above average in August.
New home sales increased 7.1% m/m in August and were up 18% from a year earlier. The housing industry had a decent August, as the impact of lower mortgage rates is spurring activity. Sales totaled 713,000 in August, up from 666,000 in July. Inventory failed to keep up with sales. New homes for sale at the end of August totaled 326,000, down 1.2% from July but up 2.5% from August 2018. The inventory-to-sales ratio for August was 5.5 months, down 0.4 month from July and 0.8 from August 2018. Lower mortgage rates at first stabilized the market and now appears to be pushing it forward. Although subject to volatility m/m, new homes sales have been on an upward trend since late last year. The fact that more homes are being built below the median home price is helping sales. The tighter market should push up construction of single-family homes.
The trade deficit for goods increased from $72.5 billion in July to $72.8 billion in August. Nominal exports increased by 0.1% after a 0.9% gain in July. The performance was mixed across export sectors. Food, feed and beverages gained 4.2% and industrial supplies rose 2.6%. Consumer goods exports fell 4.6%. Nominal goods imports increased 0.3%, following a 0.3% decline in July. Capital goods imports rose 3.2% and consumer goods gained 2.6%. The report suggests that net exports won’t be supportive of growth in the third quarter. Exports are facing a global slowdown and the high dollar is also a major headwind. The strong dollar favors imports, but the trade wars has favored front-loading of stocks, followed by a fall-off in demand as tariffs increase prices for items from certain countries
Pending home sales rose 1.6% in August, rising from 105.8 to 107.3. The increase took back part of July’s loss. All four census regions posted growth in August and were up 2.5% on a year-ago basis. Lower mortgage rate helped fuel sales. Although rising slightly lately, the 30-year rate is still down 130 basis points from last mid-December. Future growth in sales does have a lot to do with affordability. If pending sales are strong, the new market will absorb some of this momentum.
Personal income rose 0.4% in August, following a 0.1% increase in July. Personal spending increased just 0.1% for August, following a 0.3% increase in July. Spending on durable goods was strong, rising 0.9% in August, following a 0.8% advance in July. Service spending was weak, remaining unchanged for the month. The report suggests that consumer spending is slowing, not too surprising since the consumer was very strong in the second quarter. Income growth remains solid and will support sending. Inflation is weak, with the PCE deflator remaining unchanged for August, following a 0.2% rise in July. The headline index was up just 1.4% on a year earlier basis. The core deflator rose 0.1% in August, up 1.8% for the year and well below the Fed’s target.
Durable goods orders rose 0.2% in August, following a 2.0% advance in July. August was the third consecutive monthly increase. Orders, excluding transportation did rise 0.5%, offsetting the 0.5% decline in July. Defense capital goods were a bright spot, with orders rising 15.4%. Capital goods orders rose 0.2%. Core capital goods orders fell 0.2% and July’s 0.4% advance was revised to being unchanged. Hard data for manufacturing continues to remain on a weak trend. The top line figure was decent but excluding defense, orders fell 0.6%. Core capital goods orders did not advance for a second month The manufacturing sector faces some strong headwinds in the form of slowing global growth, a high dollar, low oil prices and Trump’s trade war. A positive deal with China could have a positive effect on the manufacturing sector. However, renewed trade tensions could push the global economy towards recession.
The euro-zone manufacturing manager’s index fell to an 83-month low of 45.6 in September, down from 47 in August. The services PMI fell to an 8-month low of 52 in September, down from 53.5 in August. New orders for goods and services fell for the first time since January, dropping at the sharpest rate since June 2003. The German manufacturing PMI fell to 41.4 in September from 43.5, the worst reading in more than a decade. The composite index registered 49.1 in September, down from 51.7 in August. Growth in German business activity was one of the weakest reading seen in over the past three years, recording an eighth month decrease in output and the steepest rate of decline since July 2012. In the manufacturing sector, the story remains of uncertainty about the economic outlook and a reduced appetite for investment. The automotive sector is a particular source of weakness for manufacturing. Lower demand from abroad is a key factor for both manufacturers and service providers. There were notable decreases in new export orders in the report.
Important Data Releases This Week
The September ISM manufacturing index will be released on Tuesday, October 1 at 10:00 AM EDT. Stalling growth has been this year’s signal from the ISM manufacturing index, which fell to 49.1 in August. New orders at 47.2 pointed to further weakness. We project a minor rise to 50 for September.
August construction spending will be released on Tuesday, October 1at 10:00 AM EDT. Construction spending is expected to rise 0.3% in August, following the 0.1% rise in July. There were signs of life in the single-family in August and manufacturing structures investment in July.
September motor vehicle sales will be released on Wednesday, October 2 at 4:15 PM EDT. We expect sales to continue near the 17 million pace of the last few months.
The September ISM non-manufacturing index will be released on Thursday, October 3 at 10:00 AM EDT. We see the index retreating slightly to a still good level of 55.4 for September, down from August’s 56.4 reading.
August factory orders will be released on Thursday, October 3 at 10:00 AM EDT. The advance reading of the durables showed factory orders increased 0.2%, with ex-transportation orders up 0.5%, while core capital goods orders fell 0.2%. We expect total factory orders to fall 0.6%.
September employment will be released on Friday, October 4 at 8:30 AM EDT. We project payroll growth to be near 145,000 for August, up from the 130,000 increase for August. Average earnings are expected to rise 0.3%, keeping the year-over-year increase at 3.2%. The unemployment rate will be unchanged at 3.7%.
August international trade will be released on Friday, October 4 at 8:30 AM EDT. A slight widening of the trade deficit to $54.5 billion is projected versus the $54 billion is projected for August.