Employment is Holding Back the Re-Opening of Restaurants

By | July 12, 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.


World stocks were steadied, Treasury yields bounced around and the dollar held firm on Friday as markets took a cautious breather in the face of new concerns about the pace of the economic recovery. Markets were roiled last week as a rise in cases of the Delta coronavirus variant crimped risk appetite and markets led a flight to safety. Some investors are betting the post-pandemic reflation trade had stalled and some secular stagnation was back on the agenda. There seems to be a gradual realization that the vaccination programs alone won’t get some economies back to their pre-COVID normality, as the more infectious Delta variant spreads around the world. The MSCI World index inched up 0.1% on Friday but remained on course for a weekly fall of about 1%. There are fears that global central banks will tighten monetary policy to slow inflation, just as the spread of the Delta variant slows economic activity amid low vaccination rates.

All three major U.S. stocks indexes rallied to record closing highs on Friday as financials and other economically focused sectors rebounded from a selloff sparked by worries earlier in the week. The Dow Jones Industrial Average rose 448.23 points, or 1.3% to 34,870.16, the S&P 500 gained 48.73 points, or 1.13% to 4,369.55 and the Nasdaq Composite added 142.13 points, or 0.98% to 14,701.92. For the week, the Dow was up 0.2%, the S&P 500 and the Nasdaq each added 0.4%. A big jump in quarterly earnings is expected to mark the peak for U.S. profit growth from last year’s pandemic-induced collapse. There are some fears the economic surge is already waning. Analysts expect earnings growth of 65.8% for companies in the S&P index in the second quarter, compared to a previous forecast of 54% growth at the start of the period, according to Refinitiv IBES data. There are worries the Delta variant will slow global economic activity and affect U.S. growth.

Last week was light on economic data. The only heavily watched report was the ISM services index, which dropped from the all-time record of 64 in May to a still-strong 60.1 reading. Business activity, new orders, and exports all cooled in June. Even supplier deliveries and prices paid ratcheted back from their high levels. The only disappointment was employment, which dropped from 55.3 to 49.3. The service sector is in a state of rapid expansion, although cooling a bit in June. There are still challenges with material shortages, inflation, logistics, and employment. Business conditions and confidence are high. There are still problems with the supply chains, with cost increases, delayed shipments, pushed-out lead times, and lack of clarity when shipments will be filled and arrive. The education industry is very busy at what is normally a slow time of the year. Restaurants are opening up perhaps too quickly as employment is holding back the re-opening of facilities. The medical field is seeing patients returning for treatments delayed during the COVID crisis. Prices of inputs continue to rise because of low production from plants. In all, the service sector is picking up steam, with some signs that the supply chain problems, while still difficult, are starting to ease slightly.

This week will be light on economic data. We get a look at the NFIB report, both the CPI and PPI indexes, industrial production and retail sales.

Latest Data

The U.S. Economy:

The ISM Services Index fell from 64 in May to 60.1 in June. The index indicated growth for a 13th month after a two-month contraction in April and May 2020. The rate of expansion in the service sector remains strong but a slight pull-back from May’s reading which was an all-time high. The business activity index registered 60.4 in June, down 5.8 percentage points from May. 16 industries reported an increase in business activity in June. The new orders index fell 1.8 percentage points to 62.1. 16 industries reported an increase in new orders for the month. The employment index fell 6 percentage points to 49.1%. 12 industries reported higher employment in June. The supplier delivery index fell 1.9 percentage points to 68.5, indicating slower deliveries but at a slower pace than in May. The price index fell 1.1% to a still high 79.5%. Service industries are seeing stronger demand across the board. Prices of inputs and confusion on delivery time of key inputs are still a problem. The price of commodity is a problem driven by low production at input factories. Employment remains a problem but not as many comments on finding staffing was exhibited as in previous months. The outlook for the service sector looks robust.

Wholesale inventories jumped 1.3% in May, following a 1.1% gain in April. The increase suggests that inventory build is picking up steam. Durable goods stockpiles grew 1.2%, while nondurable goods increased by 1.5%. the pace of wholesale sales slowed slightly from 1.1% in April to 0.8% in May. With inventory growth outpacing sales, the inventory-to-sales ratio inched up from 1.22 to 1.23. Demand is still strong and there are signs that production is picking up enough to allow some inventory build. Stocks remain low, another good sign for stronger production.


Growth in China’s service sector slowed sharply in June to a 14-month low weighed down by a resurgence of COVID-19 cases in southern China. The Caixin/Markit Purchasing Manager’s index (PMI) fell to 50.3 in June, the lowest since April 2020 from 55.1 in May. While slower to react than the manufacturing sector, the Chinese service sector was rebounding until a COVID outbreak of the more infectious Delta strain in the export and manufacturing hub of Guangdong since late-May and the imposition of restrictions weighted on business and consumer activity One bright spot was a marked easing in inflationary pressures. Input costs rose at the slowest pace in 20 months and service firms cut their prices charged for the first time in 22 months to win new business.

Important Data Releases This Week

The June ISM services report will be released on Tuesday, July 6 at 10:00 AM. The May ISM services index beat expectations and rose to a level of 64, another all-time high. Like, the manufacturing sector, the service sector have to contend with labor shortages, supply chain constraints and delivery problems. These problems will linger although we do see some easing in coming months. The index should come in at 63.9 for June.

The June NFIB small business optimism report will be released on Tuesday, July 13 at 6 AM. Small business confidence has slowly making progress in the last few months, reaching 99.6 in May. Small business owners still have a big problem in finding employees and dealing with higher prices. The index should equal 100 for June.

The June CPI report will be released on Tuesday, July 13 at 8:30 AM. Inflation is still strong, with the CPI rising 0.7% in May. There are some signs that inflation may be moderating as production is growing and demand is starting to shift from goods to services. We project the index will rise 0.3^ for June.

The June industrial production report will be released on Thursday, July 15 at 9:15 AM. Manufacturing has been strong although shortages of key inputs are slowing build. The combination of strong demand and low inventories suggest that production will still be robust for some time. Total IP is projected to grow 0.5% for June.

The June retail sales report will be released on Friday, June 16 at 8:30 AM. Retail sales fell sharply in May, dropping 1.3% for the month. The June report will be in showing if the transition to services will take a bite out of goods spending. Car sales fell sharply in June. The consumer is still in good shape with growing wages and rising employment. We project sales to fall 0.3% for June. A stronger reading will suggest that consumers want to still spend on goods as well as services.

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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.