Businesses Contend with a Shortage of Workers

By | August 9, 2021

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.


The Dow and the S&P 500 closed at record highs on Friday as solid jobs data overcame fear of the increase in The Delta variant of the coronavirus. The Dow Jones Industrial Average rose 114.26 points on Friday, or 0.41% to 35,208.51, the S&P 500 gained 7.42 points, or 0.71% to 4,436.52 points and the Nasdaq Composite dropped 59.36 points, or 0.4% to 14,835.76. For the week ending on Friday, the S&P was up 0.94%, the Dow added 0.78% and the Nasdaq added 1.11%. Employment came in stronger than projected, rising by 943,000 jobs and the unemployment rate dropped to a 16-month low, giving investors confidence in the economic recovery. Focus now turns to the meeting of Federal Reserve leaders in Jackson Hole, Wyoming later this month, where analysts say the subject of tapering the asset purchases by the U.S. central bank will come into the spotlight. Some hint of a schedule of reduced asset purchases is expected by investors at the meeting.

Economic data released last week highlighted the economy’s strength in the face of ongoing supply constraints, while financial markets are weighing the impact of the Delta variant on the economy and Fed policy. On Monday, construction spending came in slightly below projections. Construction spending has been hurt by the ongoing weakness in nonresidential construction, which was hurt by the pandemic and shortages of key materials that are delaying the start of new projects. Home building remains strong, rising 1.1% in June as builders work to stock the inventory of homes for sale.

The ISM manufacturing index came below expectations at 59.5, the first sub-60 reading since January. There were some hints of supply and demand coming back into balance. Supplier deliveries fell to a five-month low of 72.5, as the pace of new orders eased 1.1 points. It is far to early to start calling the end of the supply-chain saga though. The ISM services index expanded at a record pace in July. Despite their divergence, both indexes are signaling broad based expansion but operating in today’s environment is not cheap as both sectors signal that the prices paid index are still quite elevated.

In addition to high material costs and shortages of raw materials, businesses have also contended with a shortage of workers. Friday’s report that 943,000 workers were added in July likely eased some of these concerns. The total was boosted by a 262K gain in education, but gains were also widespread gains across almost all industries. The hospitality sector added 380K jobs, reflecting the re-opening of the service sector. The strong employment report and upward revisions was a strong step in the Fed’s desire for the labor market to show “substantial further progress,” before it starts tapering purchases. Before the Fed moves, it must consider the rise of new Delta COVID cases. The level of new cases are now standing above the levels of the spring and summer outbreaks of 2020. Thus far, restrictions are limited in scale and a large percentage of infections are occurring in one state, Florida. With school starting, Fed official may want to wait to see if the cases rise to the level, restrictions start to slow economic activity.

This week will provide insight on inflation, the NFIB small business confidence index and JOLTS data.

Latest Data

The U.S. Economy:

Construction spending increased 0.1% in June and were up 8.2% jump from a year earlier. During the first six months of the year, construction spending was up 5.4% from the same time period a year earlier. Residential construction spending rose 1.1% in June, while nonresidential construction spending fell 0.7% in June. Of the components of residential construction spending, single-family construction spending advanced 1.8% in June, up 51.9% from a year earlier. The multi-family sector decreased 0.1% m/m, up 19.7% from a year earlier. Of the major components of nonresidential construction spending, office construction spending fell 0.1% m/m and was down 12.5% from a year earlier. Lodging fell 0.7% m/m and was down 26.5% from a year earlier. Public construction spending fell 1.2% m/m, down 7.5% y/y. Highway and street construction spending fell 5.3% m/m and was down 7.6% y/y. The government reported that residential investment contracted in the second quarter. Although at still robust levels, the costs of building materials and lack of labor is starting to weigh on housing. Non-residential investment has been hurt by the shift away from stores and the fall in travel during the pandemic. Oil and gas investment have been slow, despite the increase in prices.

The ISM manufacturing index fell from 60.6 in June to 59.5 in July. Details were mixed. The new orders index registered 64.9 in July, down 1.1 percentage point from June. 15 0ut of 18 industries reported growth in new orders in July. The production index fell 2.4 percentage points 58.4. 16 industries reported growth in production in July. The employment index gained 3 percentage points to 52.9 in July. With 11 industries reporting higher employment. The supplier delivery index fell 2.6 percentage points to 72.9, indicating slower deliveries but at a slower pace. All 18 industries reported slower deliveries in July. Inventories fell by 2.2 percentage points to 48.9 in July, with 10 industries reporting higher inventories. The price index fell 6.4 percentage points to 85.7, indicating higher prices but at slower levels. All 18 industries reported higher prices in July. Backlogs grew by 0.5 percentage point 65.15 industries reported higher backlogs in July. Exports fell 0.5 percentage point to 55.7, with 11 industries reporting higher backlogs. Imports fell 7.3 percentage points to 53.7, with seven industries reporting higher imports.

The ISM report still shows that manufacturing industries are still struggling with long raw material lead times, shortages of critical basic materials, rising commodity prices and difficulties in transporting products. Labor shortages are constraining short-term production. Despite the problems, optimism is still high among manufacturers. Respondents are reporting shortages of raw materials and labor, as well as logistics challenges. Some report the supply chain is slowly filling up and a return to normal by year’s end may be possible. Transportation seems to be the pinch point now rather than raw material shortages. The transportation sector reports strong sales and low inventories, but the chip shortage is restraining production. Orders are being placed months in advance to secure a build slot. The report suggests that some supply chain problems are slowly easing but substantial problems remain. The manufacturing sector will remain busy for some time.

Factory orders rose 1.5% in June, more than expected. May orders were revised upward to 2.3% from 1.7%. Shipments increased 1.6%, following a 0.9% increase in May. The key core capital goods orders rose 0.7%, slightly better than the 0.6% rise in May. Inventories rose 1% from May. The increase in factory goods was broad based, with notable increases in machinery, computers and electronic products, as well as appliances and electrical equipment and components. Orders for transportation points to 72equipment rose 2.0%, boosted by a surge in bookings for Boeing. Although momentum is slowing, Manufacturing is likely to expand. Unfilled orders increased 1.0% in June. The unfiled orders-to-shipments ratio fell to 6.94 from 6.96 in May. The inventories-to-shipments ratio slipped from 1.48 from 1.49 in May.

New vehicle sales were soft in July. Supply constraints due to a global shortage of semiconductor microchips kept sales at the lowest rate in the last 12 months. Sales equaled a seasonal adjusted annualized 14.8 million, with a monthly decrease of 4.1%. Sales were only 0.3% above the pandemic-laden total of July 2020. Both sales of passenger cars and light trucks fell in July. Sales of light trucks fell 4.5% from June and were 0.5% above July 2020 totals. Car sales fell 3% m/m and were down 0.3% y/y. The near-term future for production is not good. Ward Intelligence partner LMC Automotive slashed over 200,00 from its North American estimate from June than the 8% initially expected. This suggests inventories will fall further and increased the likelihood the 3-month strong of declining sales will reach 4 in August. Longer-term, semiconductor shortages will likely persist until the end of the year, if not longer. The underlying demand is there but low production and low inventories will keep sales restrained.

The ISM services index expanded strongly in July, increasing from 60.1 in June to 64.1, the highest reading on record. The business activity index increased by 6.6 percentage points to 67, with 17 industries reporting an increase in business activity. The new orders index increased by 1.6 percentage points to 63.7, with 16 industries reported growth in new orders. Employment advanced by 4.5 percentage points to 58.3, with 13 industries reporting higher employment. The supplier deliveries index advanced by 3.5 percentage points to 72. 17 industries reported slower deliveries. Comments from respondents include “Huger importation delays from Asia and U.S. ports and rails. The big bottlenecks are due to the big ocean-going vessels’, limited capacity and container availability equipment in the U.S. ports and truck-driver shortages.” Inventories fell by 0.7 percentage points to 49.2, with 10 industries reporting a increase in inventories. The price index increased by 2.8 percentage points to 82.3. Backlogs rose by 2.3 percentage points to 63.5.

The U.S. nominal goods trade deficit widened from a revised $70.99 billion in May to $75.75 billion in June. Nominal exports were up 0.6% in June after rising 0.9% in May. Nominal imports increased 2.1% in June after a 1.3% advance in May. The June deficit is one of the largest on record but can be traced to the fiscal stimulus, the semiconductor shortage and the slow recovery outside the U.S. The shift in spending from services to goods has also created demand for imports. In time, the deficit will fall as spending shifts to services and the world economy rebounds. The shortage of semiconductors has hurt auto production and its export markets, adding to the deficit.

Total employment gains were strong in July, rising by 943,000. In addition, data for May and June were revised up by 119,000 jobs. The unemployment rate dropped to a 16-month low of 5.4%4. So far, the economy has created 4.3 million jobs this year, but employment is still 5.7 million short of the pandemic high in February 2020. Employment in leisure/hospitality increased by 380,000 jobs, accounting for 40% of the job gains. Payrolls at restaurants and bars advanced by 253,000. Government payrolls increased by a strong 240,000 as employment in local government education rose by 221,000. Hiring was strong in business services, transportation and warehousing and healthcare. Manufacturing increased by 27,000 and construction added 11,000. Retail and utilities were the only sectors to shed jobs. Details from the household survey were also upbeat. Household employment shot up by 1.043 million jobs. About 261,000 people entered the labor force, lifting the labor participation rate to 61.7% from 61.6%. average wages increased 0.45, lifting the year-on-year increase to 4.0% from 3.7%. The outlook for the labor market and the economy is good and suggests the overall momentum of the economy continues to build.

Important Data Releases This Week

The July NFIB small business confidence index report will be released on Tuesday, August 10 at 6:00 AM. Small business confidence has been slowly increasing despite still having problems with finding workers and shortages of needed materials. We expect another small increase in July from June’s 102.5 reading.

The July CPI report will be released on Wednesday, August 11 at 8:30 AM. Inflation has been strong, with the CPI index rising 0.9% in June. We expect the index to rise 0.5% in July and the year earlier number to slip to 5.3%. Details will show inflation spreading outside of some categories associated with the reopening of the economy. Shelter inflation was strong in June and is rising along with home prices. Food prices are rising as transportations costs increase and wages rise at restaurants. Some categories will start to show some slowing in price inflation. The increase in airfares is likely to slow as COVID infections rise, and the price of used cars is set to flatten as action prices are tracking down. Still, inflation is likely to be elevated until next year, when the economy; slows and production starts to keep up with demand.

The July PPI index will be released on Thursday, August 12 at 8:30 AM. The PPI rose 1.0% in June as supply shortages are causing a run-up in commodity prices. The latest ISM manufacturing survey suggested that some shortages in commodities are easing. The supply chain is responding with greater production. Transportation now seems to be the biggest bottleneck. Although the supply chain problem is still far from solved, pressures seem to be easing. The PPI index is projected to increase 0.5%.

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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.