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.
A gauge of global stocks fell for a second straight day on Friday and marked the biggest weekly percentage drop in nearly three months, after a payroll report painted a weaker economic picture. The Dow Jones Industrial Average fell 159.42 points, or 0.56% to 28,133.31, the S&P lost 28.13 points, or 0.81% to 3,426.93 and the Nasdaq lost 144.97 points, or 144.97 points, or 1.27% to 11,313.13. U.S. employment growth slowed in August, as aid from the government was depleted, with payrolls rising by 1.371 million jobs versus 1.734 million the month before. The unemployment rate fell to 8.4%, indicating that although the recovery is continuing, it is still fragile.
Employers added jobs for a fourth consecutive month in August, bringing the total number of jobs recovered from the virus-related low to 10.5 million. Although the trend is positive, the pace of job growth is moderating. Payrolls remain 7.6% off, or 11.5 million short of their February peak. The ISM manufacturing index rose to 56 in August from 54.2 and details were positive. New orders rose to 67.6 and 15 out of 18 industries reported growth in new orders. Manufacturing continues to show progress, in part fueled by a shift by the consumer to goods purchases. Service spending is still restrained by the pandemic. This suggests final demand will see some lingering weakness that may slow manufacturing. The fact that vehicle sales slowed to 14.9 million annualized in August from 15 million in July, is worrisome.
Weekly initial claims declined slightly from the previous week and beat expectations. Initial claims fell by 130,000 to 881,000 in the week ending August 29. The seasonal adjusted claims declined by 130,000 to 881,000 in the week ending August 29. New filings for Pandemic Assistance increased from 607,808 to 759,482. Continuing claims decreased from 14.49 million in the week ending August 15 to 13.25 million in the week ending August 22. The insured unemployment rate fell from 9.9% to 9.1%. The outlook for labor is mixed. After weeks of increasing, COVID-19 cases seem to be plateauing in many places. Still, the numbers are higher than in the early days of the pandemic. Good news is the ongoing decline in continuing claims. However, with 27 million still collecting UI benefits the cut in the benefits will weigh on consumer spending and slow further job creation.
Next week, we get a look at the NFIB small business optimism index, inflation and JOLTs, data.
The U.S. Economy:
U.S. construction spending eked out a modest gain in July, after declining the last four previous months. Total construction spending increased 0.1% in July, following a 0.5% decline in June. Residential construction increased 2.1% and was up 0.5% from a year earlier. New single-family construction outlays rose 3.1% in July but was down 3.2% y/y. Spending on multi-family construction surged 4.9% and was 6% higher than a year ago. Total nonresidential construction spending declined 1% in July and was down 4.3% from a year earlier. Public construction fell 1.3% in July but were up 5.1% from a year earlier. Home building will continue to benefit from low interest rates. Private nonresidential construction will see headwinds from slow office, retail and office construction. The public sector is positive year-over-year, but state and local government budgets are constrained.
U.S. manufacturing continues to recover from the recession and the improvement is broadening. The ISM manufacturing index increased from 54.2 in July to 46 in August. New orders increased 6.1 percentage pts to 67.1, the fourth consecutive increase. Fifteen out of 18 industries reported growth in new orders. The production index rose from 62.1 in July to 63.3, the highest since January 2018. Fifteen industries reported growth in production. The employment index was up from 44.3 in July to 46.4. The ISM said that more companies are hiring or attempting to hire compared with actively or passively reducing their labor force. Supplier deliveries increased 2.4 percentage points to 58.2, indicating slower deliveries. There are still ongoing disruptions to supply chains. The ISM noted that labor supply issues continue to weigh on deliveries. Inventories fell from 47 in July to 44.4 in August. Manufacturing is improving but rising numbers of COVID-19 cases will test the factory sector. There has been a lot of manufacturing jobs lost since February and those losses will take a long time to come back.
U.S. vehicle sales took a slight step sideways in August. Seasonally adjusted annual sales came in at 14.9 million, down from 15 million in July. Sales were off by 20.3% from a year earlier. Unit sales of light trucks fell 0.6% from July and off by 16% from a year earlier. Car sales fell 1.4% m/m and were down 31.6% from August 2019. One weak month does not make a trend, but it could be that consumers are running out of gas as the stimulus is ending and the unemployment rate is still high. There has been a pullback in consumer confidence recently. Vehicle sales will eventually reach the long-term average of 17 million, but it may take a prolonged period to get there as labor market progress is going to slow.
Factory orders bounced again in July, increasing 6.4%, following a similar 6.4% increase in June. July marked the third consecutive month of improvement. Factory orders remained 9.6% down from a year earlier. Durable goods orders rose 11.4% after increasing 7.7% in June and 15% in May. Orders for transportation equipment increased 35.7% in July. Excluding transportation, new orders increased 2.1% in July, a deceleration from June’s 4.8% gain. The July increase in factory orders was largely driven by the auto industry and sales backstepped in August. Housing is strong and orders for construction equipment increased 11.8% in June but slowed to 2.3% in July. Downside risks are high for manufacturing, but COVID-19 cases have cooled from the almost 70,000 peak in July. Manufacturing should stay positive, but the road may be bumpy.
The U.S. nominal trade deficit widened noticeably than expected. The trade deficit widened from $53.5 billion in June to $63.6 billion in July. Nominal imports jumped 10.9%, the second consecutive monthly gain. Within imports, some of the largest gains were in finished metal parts, crude oil and gold. Nominal exports were up 8.1%. Within exports, there were solid gains in crude oil, plastic materials, natural gas, meat/poultry and soybeans. Trade volumes are increasing but remain well below year earlier levels. The trade deficit should narrow over the next couple of months. The dollar has lost some momentum and that should support exports.
In August, the labor market continued dig out of the pandemic-related shutdowns in the spring. Payroll employment increased by 1.4 million jobs, slower than the 1.7 million in July. As a result, the labor market has recovered 53% of the jobs lost in the spring. That still leaves a deficit of 11.6 million jobs that will take many months to fill. Most of the August slowdown in employment was in leisure/hospitality, which added 174,000 jobs in August, compared with 621,000 in July. A slowdown in re-openings and some reversals explains the downshift. Trade, transportation and warehousing stepped up hiring, as did business/professional and financial services. The average workweek was little changed at 34.6 hours. Average earnings increased by 9 cents to $29.47 an hour. The household survey was more buoyant than the payroll survey, bringing the unemployment rate down to 8.4%. Payroll growth is expected to slow as stimulus runs out and the nation still grabbles with the virus.
The eurozone manufacturing purchasing managers index pointed to proving conditions in August, as the region’s recovery from the coronavirus pandemic continued. The eurozone manufacturing PMI rose to 51.7, from 51.8 in July. Caution is still warranted in assessing the likely production trend, as it would have been surprising to see any other reading than a rebound in production and sentiment. However, orders cooled in August and there are other indications that demand might be cooling.
The Caixin/Markit manufacturing index for China came in at 53.1 for August, up from 52.8 in July and the fastest pace since January 2011. Manufacturing demand and supply continue to recover and overseas demand is picking up. The sub-indexes for output and total new orders hit the highest levels since January 2011. The gauge for new export orders also entered expansionary territory for the first time this year, as the coronavirus outbreak slowed overseas. The official PMI was more circumspect. The manufacturing index for August came in at 51, down slightly from a 51.1 reading for July. The non-manufacturing index rose from 54.2 to 55.2. The composite index rose from 54.1 to 54.5.
Important Data Releases This Week
The August NFIB small business optimism report will be released on Tuesday, September 8 at 6 AM. Optimism has been slowly gaining ground but remain well off its per-pandemic peak. The index, currently at 98.8 will hit 100.2 for August.
August producer prices will be released on Thursday, September 11 at 8:30 AM. Producer prices have largely been fueled by the increase in energy prices and the re-opening of the global economy. On trend, inflation will remain restrained, with the PPI rising 0.2% for August.
August consumer prices will be released on Friday, September 10 at 8:30 AM. Inflation has slowed in the pandemic, with the headline CPI up just 1% year-over-year in July. The core CPI was up 1.6%. Gas prices are still down 20% year-over-year and food inflation has cooled. We expect the CPI to rise 0.3% for August.
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