Data Suggests the Economy Has Ticked Up As Businesses Are Reopening

By | May 18, 2020

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 stocks rose on Friday and oil prices jumped more than 3%, taking the sting out of a week that saw sentiment hit on deteriorating U.S.-Chinese relations which added to worries about how fast economies would recover from the coronavirus. European stocks opened broadly higher, with stock markets in London tracking overnight gains in the U.S. and Asian markets. Data showed China’s industrial output increased 3.9% from a year earlier, the first expansion of the year. U.S. President Donald Trump statements on Thursday signaled further deterioration of relations with China, saying he has no interest in speaking to President Xi Jinping right now and suggesting he might cut relations with China. U.S. Federal Reserve Chief Jerome Powell brushed off the notion that the Fed could push rates below zero.

Stocks recovered from steep losses early Friday to close high, despite data showing U.S. retail sales plunged more than expected and news the Trump administration will block shipments of semiconductors to China’s Huawei Technologies, raising fears of renewed trade tensions. However, sentiment increased as the House of Representatives was set to vote on another $3 trillion coronavirus package that could be the opening round of another round of fiscal stimulus. The Dow Jones Industrial Average increased 61 points, or less than 0.3% to close at 23,685.42, while the S&P added 11.20 points, or 0.4% to end the session at 2,863.70. For the week, the Dow was down 2.7%, while the S&P lost 2.3%.

The abrupt shutdown of the U.S. economy and virtually and all developed economies across the globe has reduced aggregate demand quickly. The fall was quicker than the supply side could adjust and one of the major inputs that lost significant value was oil. Almost every other commodity lost value except food and toilet items. The fall in demand was evident in the inflation reports. The consumer price index fell 0.8% and the PPI fell 1.3%. This raises the specter of deflation, but we do not think that this will take hold. The global economy has seen sharp commodity price declines in the past but they evened out in a few months.

Retail sales fell 16.4% in April, following a 8.3% drop in March. Spending was off in early every category except non-store retailers. One item of resistance was sales at building supply stores, which did fall 3.5%, but remained sturdy despite the freefall in final demand and may be a support for the residential side.

While aggregate demand fell sharply, the supply side also fell sharply. Industrial production fell 11.2% in April and manufacturing fell 13.7%. Most major manufacturing operations such as auto assembly plants were completely shut down. Notable exceptions were food products and paper products plants, which continued to work. Oil and gas drilling fell 28%, the largest decline on record dating back to 1972.

April was an awful month for the economy. However, data over the last couple of weeks suggest the economy has ticked up as businesses are reopening. Oil and gas demand increased the last couple of weeks. There has been an uptick in seated diners in parts of Texas, Georgia and Florida. There are more people traveling. New mortgage applications have picked up in the last two weeks. Truck traffic, as measured by FTR has not seen much of an increase but is bouncing along at the bottom. Activity is still depressed but it does seem most indicators agree that economy has bottomed out. Next week, we get a look at housing starts, existing home sales and leading economic indicators.

Latest Data

The U.S. Economy:

Disinflationary pressures intensified as a good portion of the U.S. economy shut down and global oil prices tanked. Consumer prices fell 0.8% in April, the largest decline since 2008. The CPI for energy dropped 10.1%, with gasoline prices plunging 20.6%. Excluding food ad energy, the core CPI fell 0.4%. declines in apparel, transportation services and used car prices contributed to the drop in core CPI. On a year-over-year basis, the headline CPI was up 0.4% and the core was up 1.4%.  Food prices rose 1.5% in April, after a 0.3% rise in March. Inflation is likely to be weak, at least utill a vaccine for COVID-19 is found.

Mirroring the fall in consumer prices, the PPI for final demand fell 1.3%in April, the largest decline since December 2009. The PPI for gasoline dropped 56.6%, the largest monthly decline since the series began in 1947. The PPI for services slipped 0.2%. Core goods fell 0.4%in April. The final demand for PPI was down 1.0% from a year earlier, while the goods PPI was down 4.8%. The near-term outlook calls for disinflation to continue for a few months, keeping the Fed on alert. The Fed will want to keep inflation expectations anchored near their desirable level. The Fed will keep rates near rock bottom until the economy starts to heal.

U.S. small business confidence has fallen sharply over the past two months because of COVID-19. The NFIB small business optimism index dropped from 96.4 in March to 90.9 in April. Among the details, hiring and capital expenditure plans weakened. Plans to increase employment fell from 21 in February to 9 in March and sat at 1 in April. Plans to make capital expenditures fell from 26 in February to 18 in April. Expectations for the economy to improve fell from 22 in February to 5 in March but rose to 29 in April, likely driven by the CARES act. Small businesses will be important as the economy reopens. The survival of small firs will be instrumental for employment growth and consumption

Retail sales continued to fall at an unprecedented rate in April as store closures and stay-at-home orders reduced sales activity dramatically. Retail sales fell 16.4% in April, after a 8.3% drop in March. April’s decline was the largest drop on record. Apparel, electronics and appliances and furniture sales were the hardest hit. Furniture sales fell 58.7% and electronics and appliances fell 60.6%. Low gasoline prices drove sales at gasoline stations down 28.8%. The only sector to post an increase was non-store sales, which rose 8.4%. Motor vehicles and parts sales fell 12.4% in April and 25.7% in March. Sales were down 21.6% from a year earlier and 16% excluding gasoline and autos. As stores are reopening, sales will bounce back, the big question is with 36 million people out of work, how much and how fast? There is some pet-up demand. Consumer confidence as been shaken, but it is not as low as the Great Recession. However, with the employment situation in a questionable state, millions of Americans will be cautious about big purchases for some time.

Business inventories stumbled again in March, with business stockpiles contracting 0.2% for the month. Wholesalers were the weakest sector, falling 0.8%. Manufacturers slipped 0.8% and retail grew 1%. Business sales fell 5.2% in March, following the 0.5% contraction in February. The decline was broad based as wholesale and manufacturing sales felling by 5.2% and retail by 5.3%. The inventory-to-sales ratio rose to 1.45 in March. The high during the Great Recession was 1.49. The outlook for inventory build is not optimistic in the near-term.

Industrial production fell 11.2% in April, following a 4.5% decline in March. Manufacturing dropped 13.7%, after declining 5.5% in March. Motor vehicle and parts output plunged an astonishing 71.7%. Excluding the auto sector, manufacturing plunged 10.3%. Lower oil prices weighed on mining, which fell 6.1% in April. Utilities output was down 0.9%, the third decline in four months. April’s decline in total IP, was down a staggering 48.2% annualized over the past three months. A bounce in output is expected in coming months as nonessential businesses start to reopen. Some industries will fare better than others including food processing and tech. Auto manufacturing will not be able to just flip a switch and turn on. Shoots will first appear in the supply base. There will be strict health protocols in place in factories. Mining will remain weak because of low oil prices. The road for manufacturing will be tough. Like China is facing today, the industrial machine has started, but final consumer demand and any support from the global economy will be slow to resurrect.


China’s factory output rose for the first time this year as the world’s second largest economy is slowly emerging from the coronavirus lockdown. Consumption from a year earlier. on remains weak and there has been increased joblessness. Industrial production increased 3.9% in April, following a 1.1% decline in March. After months of lockdowns, China is reopening its economy as the outbreak of the disease becomes under control. The production of oil, coal, metals and electricity all increased as plants restarted operations in April. However, consumer spending fell 7.5% in April and extended the fall in the first quarter as shops and restaurants were closed. Fixed-asset investment fell 10.3% in the January-to-April and 16.1% in then January-March period. Although Chinese exports perked up in April driven by a surge in medical equipment, there are worries about the international sector as many of China’s overseas markets, such as the U.S and Europe are mired in recession.

The German economy plunged into recession after suffering its steepest quarterly contraction since the 2009 financial crisis. The economy contracted by 2.2% in the first quarter and analysts expect a 10% contraction in then second quarter. Germany is fairing better than some of its neighbors. France’s economy fell 5.8 and Italy 4.7% in the first quarter. This was partly due to a decision to allow 16 states in Germany to allow construction sites and factories to remain open. There was also an unprecedented rescue package that allowed employers to switch to shorter working hours to avoid massive layoffs.  

Important Data Releases This Week

The April housing starts report will be released on Tuesday, May 19 at 8:30 AM. Mortgage applications are surprisingly down only 10% year-over-year. It seems home building was on the cusp of gaining some ground before the axe fall. Most of the job losses were n the lower income ranks, where consumers largely rent. This suggests that underlying housing demand could spring back, as construction workers go back to work. We project April starts to fall from the 1.216 million in March to 950,000 in April.

April existing home sales will be released Thursday, May 21 at 8:30 AM. Home sales will fall broadly in April but may inch up in May.

April existing home sales will be released Thursday, May 21 at 8:30 AM. Jobless claims are a great indicator of the job market. Last week showed initial claims did decline for a sixth straight week, but the eight-week total was 36.5 million. One bright spot is continuing claims, which has been nearly flat. The plateau is an early sign, employers are calling back workers. New hires early offset layoffs last week, we will see if that continues.

to fall 0.8% in March, but sales will have fallen deeply raising the inventory-to-sales ratio sharply.

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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.