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.
Global shares were flat on Friday but within sight of a record high, Oil edged lower as benchmark debt yields climbed, helping to curb the latest stimulus rally. Gains in Asian equity markets proved tough to match in Europe, after they hit a one-year high the day before. U.S. President signed the $1.9 trillion U.S. stimulus bill into law on Thursday and a further dovish tilt from the European Central Bank prompted a retreat in bond yields and raised concerns about rising inflation. Japan’s Nikkei added 1.7% on Friday but Europe’s STOXX 600 fell 0.5%. The MSCI World Index, dropped 0.1%, still less than 1.5% away from the record high hit last month. U.S. 10-year Treasury yields rose on Friday to above 1.6% and on track to have increased for a seventh straight week. There are worries that the combination of ultra0looe monetary policy and stimulus by the U.S., could lead to higher inflation and overheat the economy. On the other hand, if inflation remains low, there will be little pressure on the Federal Reserve to raise rates. The robust growth and abundant liquidity would likely drive equity markets higher.
An index of stocks across the world dipped on Friday, but still posted its strongest weekly gain in five, while U.S. Treasury yields climbed to 13-month highs, partly driven on optimism after a $1.9 trillion recovery package was signed into law. The Dow Jones Industrial Average rose 293.05 points, or 0.9% to 32,778.64, the S&P gained 4 points, or 0.10% to 3,943.34 and the Nasdaq Composite dropped 78.81 points, or 0.59% to 13,319.87. The Dow had its biggest week so far this year with a 4.1% advance and the Nasdaq posted its first positive week in four, up 3.1%. The MSCI world gauge of stocks shed 0.06% for the day. U.S. 10-year Treasury yield rose above 1.6% and posted their seventh consecutive weekly rise. Investors are still worried about inflation prospects as the economy is expected to continue mending and the stimulus package aids growth.
While the weather is warming across much of the U.S., inflation is also heating up. Consumer prices rose 0.4% in February, after a 0.3% increase in January. Gasoline prices continued to increase, rising 6.4% for the month. The PPI index rose 0.5% in February. The headline CPI index is now up 1.7% in the past year. While inflation is still generally subdued, price pressures are starting to firm. Energy is providing most of the lift, but food prices also rose in February. Inflation is likely to gain some strength in coming months. Commodity prices are increasing and service inflation will wake up as the economy re-opens. This does not necessarily mean the Fed will move quicker than planned. They also seem to be worried about the slack that still exists in the economy. Nevertheless, they will be watching both producer and consumer prices in coming months.
The $1.9 trillion COVID financial relief bill signed last week will provide an additional help to spending. The main feature is the direct checks to households and the impact will start before March ends. That will aid consumer confidence. The University of Michigan’s index of consumer confidence spiked to 83 in March from 76.8 in February. The increase in spending could propel GDP growth to strong rates, at least for a short time. The next question is whether the economy can maintain strong momentum after the stimulus effect fades. The likely path will be a strong rebound that could last through 2021. However, the long-term trend 0f growth is still near 2% and that may be a disappointment as the pandemic fades and growth resumes a normal trend.
U.S. initial claims for unemployment insurance have remained above 700,000 over the past year. U.S. initial claims for unemployment insurance benefits decreased by 42,000 to 712,000 in the week ending March 6. Continuing claims declined from 4.337 million to 4.144 million in the week ending February 27. Those claiming Pandemic Unemployment Assistance increased by 436,138 to 478,001 in the week ending March 6. Claims remain elevated, above a million where they have been since the pandemic began.
Next week we get a look at retail sales, industrial production and housing starts.
The U.S. Economy:
The NFIB Small Business Optimism Index rose 0.8 points to 95.6 in February, a small increase but still below the 47-year average reading of 98. The Uncertainty Index decreased five points to 75, Five of the 10 index components improved, four declined and one was unchanged. Owners expecting better business conditions over the next six months increased by four points to a net negative 19%, a poor reading. Forty percent of respondents reported job openings that could not be filled, ab increase of seven points from January. Earnings trends over the past three months improved five points to a net negative 11% suggesting higher earnings than in January. Fifty seven percent of respondents reported capital outlays in the last six months, up 2 points from January. Business conditions for small businesses are uneven. Manufacturing, transportation and professional services are doing well. Restaurants, non-internet retail and doing poorly. The February increase did reverse most of the decline in January but the index still remains below that seen in the second half of last year. Confidence will build when the pandemic shows more definitive signs of fading and restrictions are lifted.
Consumer prices rose 0.4% in February, after a 0.3% increase in January. Gasoline prices continued to increase, rising 6.4% for the month. Food prices rose 0.2% in February. Excluding food and energy, the core index only rose 0.1%. The all-items index was up 1.7% for the last twelve months, up from a 1.4% advance in January. The core index was up 1.3%, smaller than the 1.4% advance in January. Rising global energy and commodity prices continue to place upward pressure on U.S. producer prices. The PPI index rose 0.5% in February. The PPI for goods rose 1.4% for a second consecutive month, boosted by food and energy prices. The PPI for energy jumped 6% after a 5.1% increase for January. Service prices were up only 0.1% for February and was only the second gain in the past four months. The core PPI only increased 0.1% in February. Although the Fed will likely see the acceleration in energy and other commodities as a temporary surge in prices, they will be looking at both producer and consumer prices in the coming months.
Demand for manufactured goods drove extended growth in factories in Europe and Asia in February. However, a slowdown in China underscored the challenges countries face as they seek a sustainable recovery from the pandemic. HIS Markit’s final manufacturing PMI jumped to a three-year high of 57.9 in February, up from January’s 54.8 reading. German factory activity reached a three-year high in February and in France the pace of growth accelerated. However, lockdown measures disrupted supply chains and factories are struggling to obtain raw materials, leading to a big increase in delivery times. Manufacturing activity expanded at the fastest pace in over two years and South Korea’s exports rose for a fourth month. China’s factory activity grew at the slowest pace in nine months, hit by a domestic flare-up of COVID cases and soft demand from countries under renewed lock-down measures. China’s aixin/Markit’s manufacturing PMI fell to 50.9 in February, the lowest level since last May. Consumption in China, while recovering, has not yet fully recovered from pre-pandemic levels. With the global rebound still in its early days, the outlook is brightening as companies are increasing output to restock inventory on hopes the vaccine rollouts will normalize economic activity.
Important Data Releases This Week
The February retail sales report will be released on Tuesday, March 16 at 8:30 AM. We expect some payback in February after the strong 5.3% surge in January. Direct checks helped consumer spend in January and a 0.3% decline is projected. The next wave of stimulus checks will spur even more spending well into the second quarter. Falling restrictions and the rapid pace of vaccinations will help the consumer not only feel better but spend more.
The February industrial production index will be released on Tuesday, March 16 at 9:15 AM. Industrial production likely hit the pause button in February. Total IP was strong in January, rising 0.9%. However, we project a 0.2% decline in February. The industrial side has hit some potholes because of supply chain disruptions, such as semiconductors that did slow output in February. Brutal winter weather also hurt production during the month. The background for production is still good. Orders are rising and backlogs are increasing. After a short break in February, production will pick up again in March.
The February housing starts report will be released on Wednesday, March 17 at 8:30 AM. Housing remains one of the strongest parts of the economy but there may be some weakness coming in for February. The harsh winter weather likely weighed on starts but activity will pick up as the weather warms. There are some challenges as rising input costs and labor shortages are roadblocks to further success.
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