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 approached record highs on Friday and the dollar headed for its best weekly gain in three months, as progress in vaccine distribution and U.S. stimulus hopes prompted bets on further normalization in the global economy. The pan-European STOXX 600 was up 0.2% on Friday, though slower vaccination rollout in continental Europe compared with Britain and the United States tempered optimism. MSCI’s gauge of Asian shares outside of Japan rose 0.49% and Japan’s Nikkei rallied 1.5%. Expectations of a large stimulus by U.S. President Joe Biden also supported risk sentiment. The feeling is that the Democrats will go on their own and not compromise on a small fiscal package and the vaccine rollout is raising general hopes on the economy.
European share dipped on Friday as investors awaited more progress toward more U.S. stimulus, while the dollar was set for a weekly loss and the crypto-currency Bitcoin hit a record high. European shares were down 0.2% on early trading and Britain’s FTSE fell 0.35%. Markets in China and most of Southeast Asia were closed on Friday for the Lunar New Year. China’s stock market, foreign exchange and commodity futures markets are closed through Feb. 17 for the holiday. The MSCI’s All Country World Index, which tracks stocks across 49 countries, fell 0.15% on Friday, shy of the record reached earlier in the week. Bitcoin hit a record high of $49,000 before erasing gains.
The S&P 500 and Nasdaq set record closing highs on Friday as investors bought energy, financial and materials shares in anticipation of new fiscal aid from Washington to help the U.S. economy recover. The Dow Jones Industrial Average rose 27.70 points, or 0.1% to 31,458.40, closing a record. The S&P 500 climbed 18.45 points, or 0.5% to 3,934.83, marking its second all-time finish. The Nasdaq Composite gained 69.70 points, or 0.5% to 14,095.47, booking another record. Stocks are being boosted by optimism about another fiscal stimulus package from Congress, as the coronavirus vaccination rollout picks up steam and quarterly earnings reports that impressed analysts. A Reuters poll of economists show the U.S. economy is expected to reach pre-pandemic levels within a year if the proposed $1.9 trillion fiscal bill helps boost economic activity. Employment will take longer, more than a year to fully recover.
It was a quiet week for economic data. Market attention did focus on consumer inflation, as the CPI did rise 0.3% in January. The gain was largely driven by energy. Excluding food and energy, the core CPI was unchanged and was up just 1.4% over the past year, still far from the Fed’s target of 2%. Some analysts say that inflation will start to gain strength in a favorable economic environment. Indeed, prices are projected to gain some momentum later in the year as the economy mends and the pandemic fades. However, the slack in the labor market and the effects of globalization, which have restrained inflation over the past ten years, will not drive the Fed to raise rates anytime soon. It will take well over a year before the labor market starts to reach any where near pre-pandemic levels. The global economy will turn upwards but global growth will likely lag the U.S., keeping prices restrained.
The U.S. is on pace to exceed Biden’s goal of administrating 100 million does in his first 100 days in office, with more than 26 million shots delivered in the past three weeks. Roughly 34.7 million of some 331 million Americans have received at least their first shots of vaccine, according to the CDC. Last week, an average of 1.62 million doses a day were administered. President Biden said on Thursday, the U.S. will have enough COVID vaccine to inoculate 300 million Americans. If this comes true, the outlook for the economy will improve as the year passes. Consumer spending will certainly look to see marked improvement on services. The rebound in the labor market will take more time. Initial unemployment claims, although improving, are still very high. The pandemic has made it difficult for workers rejoin the workforce. As health concerns abate and schools return to a more normal level of activity, the labor force will mend, but the pace will be slow.
U.S. initial claims for unemployment insurance are improving again. U.S. initial claims for unemployment insurance benefits dropped from a revised 812,000 to 773,000 in the week ending February 6. Continuing claims declined from 4.69 million to 4.545 million in the week ending January 30. Those claiming Pandemic Unemployment Assistance declined by nearly 34,000 in the week ending January 30 to 334,542 in the week ending February 6. Claims remain elevated although there seems to be some improvement as infections seem to be retreating. The numbers clearly point to one fact, that the labor market will not fully recover until the pandemic fades.
Next week is light on the economic calendar. We get a look at retail sales, industrial production and housing data.
The U.S. Economy:
The NFIB Small Business Optimism Index fell from 95.9 in December to 95 in January, bringing the cumulative decline since October to 9. Owners expecting better business conditions over the next six months declined 7 points to -23%, the lowest level since November 2013. Fifty-one percent of respondents reported hiring or trying to hire in January, unchanged from December. Sales expectations over the next three months declined to a -6%. The uncertainty index declined to points to 80. The report suggests that the recent increase in COVID infections and restrictions to contain its spread, have hurt confidence. The survey does tend to lean towards the Republican Party and are to some degree, are reflecting feelings on the election. It seems that more fiscal stimulus may be needed before the economy starts to respond to what will be a positive impact from vaccinations.
Growth in consumer prices will accelerate in the first half of the year but will likely prove transitory and not bring too much reaction from the Federal Reserve. Consumer prices rose 0.3% in January, following two 0.2% monthly gains. In January, the CPI for food grew 0.1%, while energy prices were up 3.5%. Excluding food and energy, the PI was unchanged for a second month. The total CPI and the core index were up 1.4% in the past year. Before the pandemic, the CPI was running at near a 2.3% clip. Since there is still considerable slack in both the economy and the labor market, the Fed is likely not to make any tightening moves for some time. Energy costs have increased the past few months but are lower than a year ago.
Wholesale inventories rose by 0.3% in December after holding flat in November. The volatility of inventories in 2020 seems to have settled down to a more stable month-to-month build. Total wholesale inventories were down 1.6% from a year earlier. Durable goods inventories rose 0.1% and nondurable goods stocks saw a 0.6% increase. Durable goods inventories were up 1.7% from December 2019 and nondurable goods were up 1.0%. Sales increased 1.2% in December and were up 1.7% from a year earlier. The inventory-to-sales ratio came in at 1.29 in December, down from 1.31 in November and was down more significantly from the 1.34 level in December 2019.We expect a modest build in inventories as the industrial side of the economy slowly heals. Manufacturing is doing okay but has a way to go before equaling pre-pandemic levels.
Important Data Releases This Week
The January retail sales report will be released on Wednesday, February 17 at 8:30 AM. Retail sales were disappointing at the end of 2020, falling each month of the final quarter. As the calendar turns to 2021, we do expect spending to regain some of its lost momentum. Consumer spending is projected to have picked up 0.7% for January. Auto sales did pic up in January to a 16.6 million annualized rate, the fastest pace since February last year. Stripping out autos, we expect a more modest 0.2% gain for January.
The January PPI report will be released on Wednesday, February 17 at 8:30 AM. Inflation is awakening but largely confined to energy lately. The PPI rose 0.3% in December. There is still considerable slack in the economy, with the core rate of the already released CPI report only rising 0.1% in December. We look for total PPI to rise 0.2% in January and the core will rise only 0.1%.
The industrial production report will be released on Wednesday, February 17 at 9:15 AM. While consumer spending faded at the end of 2020, industrial production picked up, rising 1.6% in December. Some of the jump came from a strong 6.2% increase in utility output. We project total IP to increase 0.5% for January. Some of the production strength is coming from an inventory build, as the pandemic left supply chain disruptions. Spending will shift towards the service sector and durables are unlikely to see continued strength. The industrial side will settle down to a modest upward path by year’s end.
The December business inventories report will be released on Wednesday, February 17 at 10:00 AM. Business stocks started to increase in November, rising 0.5%, as producers started a modest inventory build to not only keep up with rising demand, but rebuild supply chains hurt by the pandemic. We expect another 0.5% build in stocks for December.
The January housing starts report will be released on Thursday, February 18, at 8:30 AM. Starts ended 2020 at the strongest pace since 2006. The single-family sector is driving the market as the multi-family sector has been flat since August. Inventories remain low and demand is still high, driven by the low mortgage rates. Still, we expect activity to remain strong, although a pullback from 1.669 million in December to 1.651 million for January is expected.
The January existing home sales report will be released on Friday, February 19 at 10:00 AM. December sales were strong at 6.76 million for December. Inventories are los and demand still strong, although the restrictions may have slowed activity a little. We look for sales to come in at 6.65 million for January.
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