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 were steady on Friday as the uncertainty ahead of a meeting between U.S. President Donald Trump and Chinese President Xi Jinping deterred traders from making bold moves. MSCI’s All Country World Index, which tracks shares in 47 countries, was up just 0.04% for the day. On Thursday, China’s central bank pledged to support a slowing economy ahead of a release of data that is expected to show China’s factory activity shrank for a second consecutive month. Market participants are taking a cautious approach ahead of this high-level meeting as hopes for a material breakthrough are low. The Trump administration had tentatively agreed to delay new tariffs on Chinese goods.
Wall Street advanced on heavy trading on Friday, with the S&P and Dow closing on the best June in generations. This was partly driven ahead of anticipated talks between the U.S. President Donald Trump and Chinese counterpart Xi Jinping. The markets had closed before an announcement came that trade talks between the two nations would resume. Trump said he would not lift existing duties but would refrain from slapping new levies on an additional $300 billion of Chinese imports. He also announced that U.S. firms would be able to sell components to Huawei, as long there were no national security problems. The truce offered relief from nearly a year-long trade standoff, where the two countries slapped tariffs on billions of dollars of each other’s imports. This disrupted suppl chains, roiled financial markets and slowed global growth. The Dow rose 73.38 points to 26,599.96. The S&P rose 16.84 points to 2,941.
The Commerce Department announced that durable goods orders declined 1.3% in May. Boeing’s troubles with the 737 MAX were largely responsible for the decline in orders in May. The company was responsible for 30% of lower orders in May in the nondefense aircraft sector and 40% in April. Core capital goods orders did rise 0.4%, but that did not offset the 1.0% decline in April. The problems at Boeing are putting a damper on manufacturing orders. Excluding aircraft nondefense capital goods shipments are up 1.7%. Factory activity is still under pressure, but the while picture is not quite as gloomy as the orders series suggests.
Next week will be busy with economic data. We get a look at the ISM manufacturing and nonmanufacturing indexes, vehicle sales, international trade, factory orders, construction sending and employment on Friday.
The U.S. Economy:
The Chicago Fed National Activity Index increased to -0.05 in May from -0.48 in April. Three of the four broad categories that make up the index increased, but only one made a positive contribution to the index. The three-month moving average increased to -0.17 from -0.37. Negative readings still indicate that economic growth is proceeding below average. The production index contributed 0.07, compared with -0.44 in April. Industrial production did increase in May. The sales, orders and inventories made a -0.02 contribution. Employment indicators contributed -0.06 compared with 0.05 the previous month. The personal consumption and housing category contributed -0.06 compared to a -0.08 reading the previous month.
New single-family homes sales totaled 626,000 in May, down 7.8% from April’s 679,000 level. Sales were down 3.7% from a year earlier. The market loosened slightly. The number of homes listed for sale at the end of May increased by 1,000 to 333,000. The inventory-to-sales ratio was 6.4 months, up from 5.9 months in April and 5.6 months in May 2018. Unlike existing homes, the new homes market has loosened significantly with a 10.3% increase in the number of new homes listed for sale from a year earlier. Demand for new homes is weaker than last year because of affordability. The market for existing homes is tight and that should push some customers toward a new home. Low mortgage rates should provide some modest lift in the near term.
The nominal goods deficit swelled to $74.5 billion in May, up from $70.9 billion in April. Nominal goods exports rose 3% after falling 3.2% in April, but they remain down 2.5% from a year ago. Most major export categories gained ground, with foods, feeds and beverages increasing 7.1%. Capital goods exports rose 3.5%. Nominal imports increased 3.7%, following a 2.5% decline in April. Most import categories rebounded from April’s losses. Automotive imports surged 7.5%. The report was encouraging as trade volumes increased. While the U.S. economy remains strong, the trade war has increased a broad range of products for consumers and businesses. The trade war is hurting both the U.S. and Chinese economies. Some form of a deal is needed to reduce uncertainty and jump start the global economy.
The pending homes sales index rose 1.1% to 105.4 in May, following a 1.5% decline in April. On a year ago basis, sales remain down 0.7%, the 17th consecutive month of decreases. The Northeast and Midwest clocked sizable gains, while sales in the South were early flat and the West registered a decline. Sales did pop up in May after a slight Aril decline and reinforced the rebound in sales since the start of 2019. Even so, sales have only risen to their mid-2018 level. Affordability remains a problem and both existing and new home sales have been touch-and-go in recent quarters. The 30-year fixed mortgage rate has been trending down since the end of 2018, down roughly 67 basis points. The inventory-to-sales ratio is 4.3 months, well below the level needed to reduce the erosion in affordability.
Personal income increased 0.5 in both May and April, a solid foundation for consumer spending. Personal income was up 4.1% from a year earlier in May, up from 3.9% in April. Personal spending rose 0.2% in both May and April. Consumer spending was less consistent late last year but growth seems to have stabilized around a modest trend. Some of the volatility was related to the gyrations in the stock market and the impact of the government shutdown. Spending should proceed forward at a modest trend. The income gains and job creation level are solid. Trade is creating some uncertainty. Inflation remains subdued. The PCE deflator rose 0.2% in May, following a 0.3% rise in April. The core deflator also rose 0.2%. The PCE deflator was up 1.5% y/y and the core 1.6%, both indexes well below the Fed inflation target.
Important Data Releases This Week
June ISM manufacturing index will be released on Monday, July 1 at 10:00 AM EDT. The index is expected to fall to 51.2 in June from 52.1 in May.
May construction spending will be released on Monday, July 1 at 10:00 AM EDT. We project construction spending to rise 0.5% in May after being unchanged in April.
June motor vehicle sales will be released on Tuesday, July at 4:00 PM EDT. We project that sales will fall a little to 17.0 million in June, after the strong 17.4 million reading in May.
May international trade will be released on Wednesday, July 3 at 8:30 AM EDT. We expect the trade deficit to rise to $51.7 billion in May up from $ 50.8 billion in April.
May factory orders will be released on Wednesday, July 3 at 10:00 AM EDT. The advance reading of the durables report showed orders falling 1.3%. We see factory orders falling 0.8%.
June ISM non-manufacturing index will be released on Wednesday, July 3 at 10:00 AM EDT. Steady strength is projected for the service sector. The ISM non-manufacturing index is projected to decline to 55.4, down from May’s 56.9 reading.
May employment situation will be released on Friday, July 5 at 8:30 AM EDT. We expect June payrolls to grow by 190,000, rebounding from the weak 75,000 total in May. Average hourly earnings will increase by 0.3%, up 3.2% for the year. The unemployment rate will be 3.7%, up a tick from 3.6% in May.