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 equity shares inched to a four-week high on Friday and industrial bellwether copper was set for its longest weekly winning streak in nearly three years, as recovering global data kept nagging coronavirus nerves at bay. The market rally, fueled by Thursday’s record jobs numbers, largely blew itself out after a record daily total of new U.S. coronavirus cases, though news of the fastest expansion in China’s service in over a decade kept Asian markets up early in the day. Chinese share charged to their highest level in five years, helping the Pan-Asian indexes to four-month peaks. However, this left European trades floundering. Especially with no Wall Street to pick things up because of a U.S. holiday. London, Paris and Frankfurt’s indexes were down 1.2%, 0.4% and 0.8%, respectively.
It was a busy week for economic data headed for the Fourth of July weekend. The resurgence of the coronavirus in the South and West dominated the headlines, as new infections reached a new single-day record and passed 50,000 cases. In response, many state and local officials around the country are now implementing mask-wearing mandates, delaying re-opening plans and reinstituting restrictions on some businesses. Economic data in these areas seems to be slowing, according to high frequency data which track mobility and restaurant reservations. Overall, a smooth climb back to prior peak levels looks increasingly less likely.
Total payrolls increased by 4.8 million and the unemployment rate fell to 11.1%. It was another step in the right direction but employment remains nearly 10% below the February peak. Initial claims for unemployment insurance fell slightly to just over 1.4 million in the week ending June 27. Claims have been trending lower recently but remain frustratingly elevated. Continuing claims came in at almost 19.3 million. In short, labor market conditions are improving but remain well below pre-COVID-19 levels.
Conditions in the manufacturing sector seem to be improving. The ISM manufacturing index blew past expectations during June, rising to a 14-month high of 52.6. New orders sharply rebounded, which bodes well for the near-term outlook for the factory sector. While welcome news, the June surge likely reflects the relief of -reopening rather that a full rebound in activity for the sector. U. S. vehicle sales increased from 12.1 million in May to 12.7 billion in June. Again, a step forward but still well below the 18 million level in February.
Next week, we get a look at the ISM non-manufacturing index, jolts data and the producer price index.
The U.S. Economy:
The NAR pending home sales index skyrocketed 44.3% to 99.6 in May, regaining all of April’s steep losses as the cautious re-opening of states across the nation encouraged home buyers to re-enter the market. All census regions saw growing in May. National pending home sales are now down only 5.1% from a year earlier. The index remains lower than February’s 111.4 level. Inventories are hovering near the lowest levels ever recorded going back to 1999. This has allowed prices to increase even in the middle of the COVID-19 shutdowns. The 30-year fixed mortgage rates declined to a record low 3.13% in late June, fueling buyer activity. However, incomes must grow to keep up with price appreciation. Sale will track near 4.5 million annualized rate in 2020 but won’t reach precession levels until mid-2022.
The ISM manufacturing index jumped in June, but there is likely to be a disconnect with actual production data. Respondents likely were partly lifted by the improvement from April’s shut down conditions. The ISM manu8facturing index improved to 52.6 in June, up from 43.1 in May and 41.5 in April. New orders rose to 56.4 in June, up from 31.8 in May. Production jumped from 33.2 in May to 57.3 in June. Of 18 manufacturing industries, 13 reported growth in production compared with four in May. Employment edged up from 32.1 to 42.1 in June. The supplier delivery index fell from 68 to 56.9, indicating slower deliveries. Disruptions in supply chains are still causing problems. Inventories were little changed at 50.5. The prices paid index rose from 40.8 to 51.3. Exports improved from 439.5 to 47.6, while imports rose from 41.3 to 48.8. Anecdotes were consistent with a gradual recovery. Housing is doing well and food, beverage and tobacco products are doing fine. Other industries are improving but slowly. The outlook calls for a slow gradual increase in manufacturing activity.
Construction spending in May fell short of expectations. Total construction spending fell 2.1% from April, with a 4.0% decline in residential construction driving most of the decrease. Private residential outlays were up 0.7% from a year earlier. New single-family outlays fell 8.5% in May and were down 4.4% year-over-year. Spending on multifamily units rose 2.3% m/m but was down 5.6% year-over-year. Nonresidential construction spending fell 2.4% from April and was off 3.4% y/y. Public construction spending increased 1.3% from April and was up 4.7% from April 2019. The outlook for construction is mixed. There will strength in single-family construction but weaker in the multi-family sector will be weaker. Weak business investment will place downward pressure on nonresidential spending. The House of Representatives will likely pass a infrastructure bill but is unlikely to pass through the Senate. The public side will see offsetting pressures.
Consumer confidence improved in June but remains below levels seen before the COVID-19 crisis. The Conference Board’s index of consumer confidence increased from 85.9 in May to 98.1 in June. Consumers’ expectations improved from 68.4 to 86.2 but are well below the 170 levels seen before the crisis. Expectations rose from 97.6 in May to 106 in June, putting it near to pre-COVID-19 levels. Confidence has improved but the survey was taken before the recent rise in coronavirus cases and the slowdown in re-opening plans. Confidence also depends a lot of stimulus policies. Unless Congress passes additional stimulus funds, confidence may falter and spending may slow. The economy may start to move sideways, or re-enter recession.
COVID-19 continued to take a major toll on international trade in May. The trade deficit widened for a third consecutive month as exports fell more than imports. The deficit rose to $54.6 billion, up from $49.8 billion in April. Nominal exports fell 4.4% added to the double-digit declined sustained in both March and April. Exports are down by nearly a third from a year earlier. Imports fell 0.9% and left that category down by a quarter from a year earlier. May’s decline came even as restrictions were starting to be lifted and underscores how slow trade flows will be to normalize. The threat of further infections throws considerable uncertainty into the future. Trade flows will be weak for the remainder of 2020.
The labor market posted a strong rebound in June, adding 4.8 million jobs, following the addition of 2.5 million in May. The unemployment rate fell to 11.1%. The survey was conducted before the increase in coronavirus cases, adding uncertainty to future employment gains. Average weekly hours dropped to 34.5 from 34.7 as workers were added that tend to work shorter hours were brought back. Average hourly earnings dropped by 35 cents, as lower-wage workers were called back. One third of the jobs lost since February have been recovered. However, the recovery may pause during the summer months as some states slowed reopening policies due to rising infection rates. Many businesses will close permanently, also slowing job creation in coming months. Risks are clearly to the downside.
China’s factory activity expanded at a stronger pace in June after the government lifted lockdowns and stepped up investment. However, persistent weakness in export orders suggest the coronavirus will be a drag on production for some time. The official manufacturing Purchasing Manager’s Index came in at 50.9 in June, up from May’s 50.6 reading in May. New orders rose to 51.4 from May’s 50.9 reading. Export orders increased to 42.6 in June, up from 35.3 in May but still below the 50 mark. The non-manufacturing index rose to 54.4, up from 53.6 in May. Construction activity slowed in June from May, highlighting the fragile and uneven nature of the Chinese recovery.
Important Data Releases This Week
The June ISM non-manufacturing index will be released on Monday, July 6 at 10:00 AM. The index took a deep dive in March and April but rebounded in May to 45.4. We expect further improvement for June to 52.0.
The June PPI report will be released Friday, July 10 at 8:30 AM. Producer prices increased o.4% in May, alleviating fears about disinflation. W expect the index to rise 0.1% in June, suggesting that inflation is positive but weak.
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