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.
European stocks and Wall Street futures fell on Friday as a battle between hedge funds and retail investors and a row in Europe over COVID-19 vaccine supplies cooled risk appetite. Wall Street has been gripped by a coordinated assault by small traders organizing over online forums such as Reddit, to force hedge funds to reverse short positions on companies such as GameStop and AMC Entertainment. Britain’s FTSE 100 index fell 1.7% on Friday, as COVID-19 vaccine delays have snowballed into a spat between Britain, the European Union and drug makers over how best to direct limited supplies. World stocks fell 0.5% towards three-week lows set in the previous session.
U.S. stocks fell sharply on Friday as the speculative frenzy around GameStop Corp. continued, raising concerns about financial stability and offering another potential sign of market froth. The Dow Jones Industrial Average fell 622 points on Friday, or 2% to end near 29,981. The S&P 500 declined 73 points, or 1.9% to finish near 3,714. The Nasdaq lost 266 points on Friday, or 2% to close near 13,071. The Dow and the S&P lost 3.3% for the week. And the Nasdaq backtracked 3.5%. Market participants have speculated that volatility caused by the short squeezes have led to market favorites including Apple coming under pressure as hedge funds sell to cover billions of dollars in losses. And it is occurring when concerns over rising COVID-19 cases and bumpy vaccine rollouts are causing concerns about stretched stock valuations.
There was plenty of economic data released last week and most of it tracked near the consensus view. Real GDP came in at a decent 4% annualized rate in the last quarter of 2020. The slowdown has raised concerns for growth in the first quarter of the year. The chief concern is the considerable loss of momentum in consumer spending towards the end of last year. Personal spending slid 0.2% in December, following a revised 0.7% loss in November. The decline came mainly from goods consumption, which slipped each month in the fourth quarter. Durables spending fell in both December and November. The PCE deflator advanced 0.4% in December, largely driven by energy prices. The weakness in spending likely means weak inflation in the first quarter.
Spending will likely remain restrained in the first quarter. The increased COVID-19 infections and uncertainty over new COVID variants have weighed on consumer confidence. Consumer confidence increased in January but only slightly. Perceptions of current conditions slid in January in the Conference Board report. However, future expectations rose for a second month. This follows our future projections. Spending will lag in the first quarter but perk up in the second quarter as more vaccinations become available. The economy is still tied to progress on the virus. Downside risks are still relatively short-term and include some longer-term risks if progress against the virus runs into complications. Upside risks do appear if the virus appears to be on the downside. A rise in consumer confidence, plus the impact of stimulus packages and low interest rates could cause a surprising rebound in spending, if the virus appears to be conquered.
U.S. initial claims for unemployment insurance benefits dropped by 67,000 to 847,000 in the week ending January 23. The prior week was revised higher by 14,000 to 914,000. Continuing claims declined from 4.974 million to 4.771 million in the week ending January 16. Those claiming Pandemic Unemployment Assistance declined from 447,328 to 426,856 in the week ending January 23. Claims remain highly elevated and the labor market continues to struggle this year. The numbers clearly point to one fact that the labor market will not fully recover until the pandemic fades.
Next week, we get a look at The ISM manufacturing and non-manufacturing indexes, vehicle sales, factory orders and employment reports.
The U.S. Economy:
The Chicago Fed National Activity Index rose during December to 0.52 from 0.31 in November. Three out the four broad categories used to build the index made positive contributions, but thee out of four also decreased from November. The three-month moving average came in ay 0.61, up slightly from the 0.59 reading in November. Negative readings indicate a slowing of activity and readings below -0.7 historically mean a recession. Production-related indicators contributed 0.44 to the index in December, up from 0.13 in November. Employment-related indicators contributed 0.13 to the CFNAI in December, down from 0.15 in November. The consumption and housing sector decreased to -0.09 from -0.06 in November, Sales, orders and inventories fell to 0.05 from 0.09 in November. The diffusion index came in at 0.54 in December from 0.55 in November. That reading suggests that economic growth is increasing as it is above the -0.35 level, associated with slowing economic growth.
Durable goods orders rose 0.2% in December, a little weaker than expected. The December increase was the weakest in several months and comes on the heels of increases more than 1% in each of the prior three months. Excluding transportation, orders rose 0.7%. Machinery orders drove much of the December increase, up 2.4% and the eighth consecutive increase. Nondefense new orders for capital goods fell 2.0% in December but rose 0.6% excluding the aircraft sector. Inventories fell 0.2% and unfilled orders fell 0.3%. Shipments increased 1.4%, up seven out of the last eight months. Following several months of strength, a slowdown in durable goods was expected. However, since other data in December was also weak, there are questions about the sustained recovery in manufacturing. The December report was positive, an important distinction in a slowing economy. Manufacturing does remain one of the strong sectors in the economy.
Wholesale trade inventories inched up 0.1% in December after stockpiles were unchanged in November. Wholesale inventories were down 1.8% from a year earlier. Retail inventories advanced 0.1% in December and were down 5.8% from December 2019. Durable goods inventories were flat in December but were down 1.9% from a year earlier. Nondurable goods stocks advanced 0.3% in December and up 1.3% from a excluding motor vehicles and parts, retail inventories expanded 1.1% and were up 0.4 from a year earlier. Inventories are low and need some rebuilding but the recent slowing in demand is a concern.
The nominal goods deficit narrowed by $3 billion in December, from $85.5 billion to $82.5 billion. The other two months of the quarter saw the deficit widen, making trade a 1.5 percentage drag on fourth quarter growth. Exports of goods rose by $5.9 billion in December, while imports increased by $ 2.9 billion. Exports of goods remained down 2.6% from December 2019, while imports were up 4.7%. The nominal goods deficit widened by $13.2 billion in 2020, after narrowing by $10.6 billion in 2019. COVID-19 induced supply chain disruptions will continue into 2021 as uneven recoveries take hold across the globe.
Personal income rose by 0.6% in December, following a downwardly revised 1.3% decline in November. The increase came largely from government transfers, which fell by 3.5% in November, but gained 2.3% in December. Compensation of employees rose 0.5%, up from November’s 0.4% increase. Personal spending fell for a second straight month as increased infections drove more restrictions and consumers became more cautious. Real spending fell 0.6% in December after a downwardly revised 0.7% decline in November, which was the first decline since April. Goods spending led the decline, falling 1.4%, the same as in November. Nondurable goods spending fell 1.4% and durable goods spending fell 1.3%. The PCE deflator increased 0.4%, largely driven by energy, which rose 4.2%. The report suggests that the rising tide of COVID-19 infections is slowing consumer activity and causing the economy to lose steam. Another stimulus package is needed to keep the economy from losing momentum. Consumer spending growth could ground to a halt before enough vaccinations are completed to start the economy on the road towards a normal recovery.
Growth in Germany and Spain and a smaller than expected contraction in France pointed to resilience in the euro zone economy in the final quarter of 2020. In Germany, robust exports helped Europe’s largest economy to eke out a 0.1% growth, staving off contraction despite a second wave of new coronavirus infections hit consumption. France, the euro zone’s second largest economy, shrank 1.3% in the final three months of the year. Spain advanced 0.4%, but output fell 11% from 2019’s level. In all, the disappointing vaccine rollout and extension of restrictions in many European countries point to continued weakness in the first quarter. The French slump was better than the consensus projection of a 4% slump in the fourth quarter. The economic outlook is being muddied by a row over the European Union and suppliers of vaccines. The International Monetary Fund projects the European Unions will slip behind the U.S. in the path of recovery.
Important Data Releases This Week
The January ISM manufacturing report will be released on Monday, February 1 at 10:00 AM. Manufacturing likely remained strong at the beginning of 2021. Solid demand for goods and the need to rebuild inventories have kept production growing at an impressive rate. Still, the slowdown in consumption of goods in the fourth quarter suggest a slower pace may follow in coming months. The supply chain has labor problems, mainly caused by the COVID environment. Still, the index should remain near 60 for January.
The U.S. January vehicle sales will be released on Monday, February 1 at 10:00 AM. Sales returned to over 16 million in December and that trend should modestly hold up for the next few months. People who buy new vehicles have not been hurt as much as the lower paid service workers have been. This is keeping sales at a decent but still only slowly improving trend.
The January ISM non-manufacturing report will be released on Wednesday, February 3 at 10:00 AM. The services economy has borne the brunt of the recent COVID-19 restrictions, but we still expect the index to remain in expansionary territory. Suppler deliveries are a problem with both services and manufacturing. The restrictions mainly are on close person-to-person industries, while construction, agriculture and mining are less affected. The index should tack near to 57.2 reading, as in December.
The December factory orders report will be released on Thursday, February 4 at 10:00 AM. Already released durable goods orders were decent but slower as expected. Durable goods orders only advanced 0.2% in December, but excluding transportation, orders were up a respectful 0.7%. However, this was slower than preceding months. Factory orders are projected to advance 0.3% for December.
The January employment report will be released on Friday, February 5 at 8:30 AM. The labor market went into reverse in December, with employment falling by 140,000. Nearly half a million jobs were lost in the leisure and hospitality sector as many bars and restaurants and bars closed again. Since December, the labor market has become slightly worse. Initial claims have increased but not nearly as right before the December employment release. We expect a loss of 50,000 jobs for January.
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