Finding Labor is Both “Challenging and Frustrating”

By | May 10, 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.


Global stocks headed for their first weekly gain in three amid a surge in commodity prices, while trades braced for a key U.S. jobs report on Friday that could provide clues on when the Federal Reserve will ease back on monetary stimulus. MCSI’s benchmark for global equity markets, which tracks stocks in 50 countries, edged up 0.1%. Aluminum prices approached levels last seen in 2018 and copper flirted with 10-year peaks as investors bet on a rapid global recovery, led by the United States. Iron ore futures vaulted to a record high on Friday. Some investors are pointing out that the rally in commodity prices will peak soon and then consolidate at the current high levels. The dollar sank to the lowest level of the week against a basket of major peers on Friday head of the jobs report.

The S&P 500 and the Dow hit record highs on Friday after U.S. jobs growth unexpectedly slowed in April likely restrained by a shortage of workers. The report alleviated some fears of rising inflation and potentially higher U.S. interest rates, which some investors worry would hurt companies with high valuations. The Dow Jones Industrial Average rose 227.91 points, or 0.66% to 34,776.44, the S&P gained 30.81 points, or 0.73% to 4,232.43 and the Nasdaq Composite added 119.40 points, or 0.88% to 13,752.24. An upbeat in earnings has also helped stocks and S&P companies are now estimated to have increased 50.4% in the first quarter from a year ago, the highest growth rate since the first quarter of 2010, according to Refintiv data. The weak labor report did not change expectations that the economy entered the second quarter with strong momentum and was on track for its best performance this year in almost four decades. Timely labor market expectations, like weekly unemployment claims, which dropped last week below 500.000 for the first time since the pandemic began, suggest payrolls will pick up.

The April jobs report was a big disappointment. Employers added just 266,000 workers. Finding and retaining workers has become a big problem. Another one is that manufacturers are forced to idle plants because of a lack of materials. The re-opening of the service sector was a bright spot. The leisure and hospitality sector added 331,000 new jobs. The unmistakable message from last week’s data is that the economy could be growing faster if not for limited access for essential raw materials and labor. The ISM manufacturing report slowed to 60.7 in April from 64.7 in March. The sharpest decline was in the production index, which fell 5.6 percentage points. That is not encouraging after industrial production fell in February and only partly regained the loss in March. Supply chain shortages, particularly in microchips and processors, have shuttered auto assembly plants across the country. New orders slowed to a still red-hot 64.3 from 68 in April, even as plants can not keep up with demand. As one respondent noted from the plastics and rubber industry, “In 35 years, I’ve never seen such extended lead times and rising prices.”

The fact that the ISM services index slipped a point to 62.7 in April from 63.7 the prior month would ordinarily suggest the service sector is moderating. As is the case of the manufacturing sector, the tea leaves are not so clear. The supply chain issues are causing problems with some of the ISM components for both manufacturing and services. New orders fell 4 points to 63.2, which is still high, but backlogs jumped 5.5 points. The shortage of materials is causing prices to soar. The ISM manufacturing price index soared to89.6, the highest reading since 1979. Yet unlike in 2008, demand is not wavering and manufacturers are able to pass on the additional costs.

The biggest headache for the service sector is finding labor. A record 42% of independent businesses reported having problems filling at least one position. Statements from the Ism service report confirm that fact. Finding skilled and unskilled labor is both “challenging and frustrating” and companies are not accepting all the work they could if they had the labor.

Next week will be interesting for economic data. The CPI and PPI indexes will be released, as well as the NFIB small business report and retail sales and industrial production.

Latest Data

The U.S. Economy:

The ISM manufacturing index fell from 64.7 in March to a still elevated 60.7 in April. The details were less impressive than in March. The new orders index retreated 3.7 percentage points to 64.3. Out of 18 industries, 16 reported growth in April. The production index fell 5.6 percentage points to 62.5 in March. 14 industries reported increase in production in April. The employment index registered 55.1 in April, down 4.5 percentage points than in March. 13 out of 18 industries reported increased employment in April. The supplier delivery index registered 75 in April, down 1.6 percentage points from March and indicating slower deliveries. Inventories fell 4.3 percentage points to 46.5 in April. The price index increased by 4 percentage points to 89.6. In the last three months, the index has been at its highest levels since July 2008, when its registered 90.4%. Backlogs rose by 0.7 of a percentage point. New export orders registered 54.9, an increase of 0.4 of a percentage point from March. Imports fell by 4.5 percentage points to 52.2.

Despite the April retreat, the ISM manufacturing index remains elevated. Manufacturers and suppliers are struggling to meet increased demand. Recent-record lead times, widespread shortages of critical parts, increased prices and difficulties in transporting products continue to limit all segments of the manufacturing economy. All six of the biggest industries reported strong growth in April and all 18 reported growth. Statements from respondents were positive on the demand side but were facing difficulties in keeping up with the supply issue. A respondent from the Chemical industry said demand is outpacing supply and that is likely to continue well into the third quarter when supply can be increased. A respondent from transportation said that a semiconductor shortage is slowing production. A respondent from the steel industry said that “Steel prices are crazy high.” Other manufacturers report difficulties in manufacturing using copper and steel. Supply shortages and rising prices are making it difficult to deliver finished products. Strong demand and low inventories will fuel production in coming months. Some normalization in the supply chain can be expected in the second half of the year for some products. Some product shortages such as semiconductors may constrain production into 2022.

U.S. construction spending rebounded far less than expected in March as strength in housing was offset in continued weakness on nonresidential structures and public projects. Construction spending increased 0.2% in March, up 5.3% from a year earlier. Residential construction advanced 1.7%, while nonresidential construction spending fell 0.9% for the month. Public construction fell 1.5% in March. Residential construction in March was up 23.3% from a year earlier and nonresidential constriction was up 7.4%. New single-family construction spending advanced 2.0% in March, while the multi-family component fell 0.3%. The outlook for construction is mixed as the residential side will continue to show strength, while the nonresidential sector faces widespread structural weakness. Business investment in the first quarter decreased for a sixth straight quarter as a rebound in mining exploration, shafts and wells was offset by a drop in commercial and healthcare buildings.

The U.S. trade deficit surged to a record $74.4 billion in March as an improving economy drove purchases of imported foreign goods. Imports rose 6.3%, while exports increased 6.6% in March. Exports of goods increased by $11.7 billion to $142.9 billion. Imports of good increased by $15.3 billion to $234.4 billion in March. The politically sensitive trade deficit with China rose 11.6% to $27.7 billion, which is as usual the single deficit with any single country. The deficit is likely to widen as the strength of the U.S. will fuel imports. U.S. exported face sluggish sales as overseas demand is slower to recover. Donald Trump sought to restrain the deficit with tariffs that angered U.S. allies as well as China. President Biden has been slow to reverse all of Trump’s tariffs because he seeks to protect American jobs. Trade volumes will increase the remainder of 2021, but exports will be on a slow course.

U.S. new vehicle sales putt the pedal to the metal for a second month in a row. Sales equaled an annual rate of 18.5 million units for April, the strongest April in the history of the auto market and the highest since July 2005. Total light vehicle sales represented a monthly increase of 3.1% and were up 112.2% ahead of the pandemic-ravaged totals of April 2020. Sales of both passenger cars and light duty trucks remained strong. Sales of light trucks and SUVs increased 2.4% from March and were 21.9% above April 2019. Passenger car sales rose 5.3% month-over-month and were up 109.4% from a year earlier. Passenger cars sales were 14% below 2019 levels as consumers continue to shift towards larger vehicles.

Factory orders expanded by 1.1% in March, following a 0.5% decline in February. Excluding transportation, orders grew 1.7%. February proved to be just an outlier, containing the only decline since April last year. Orders rose 6.6% on a year ago basis. Shipments, also up 10 out the last eleven months, rose 2.1% in March, following a 1.9% decrease in February. Unfilled orders, up three consecutive months, increased 0.4%. The unfilled orders-to-shipments ratio was 6.21 in March, down from 6.30 in February. Inventories, up seven out of the last eight months, increased 0.7% in March. The inventories-to-shipments ratio was 1.38, down from 1.40 in February. Orders for core capital goods jumped 1.2%. Factory orders were boosted by strong demand for machinery, motor vehicles, fabricated and primary metal products. Orders for electrical equipment, appliances and components decreased.

The ISM services index slipped from an all-time high in March of 63.7 to 62.7 in April. The details highlighted the ongoing supply chain disruptions. The business activity index fell 6.7 percentage points to 62.7. 17 industries reported an increase in business activity for the month. The new orders index fell 4 percentage points to 63.2, with 17 industries reporting new orders. The employment index increased by 5.1 percentage points to 58.8. 11 industries reported higher employment in April. The supplier delivery index increased by 5.1 percentage points to 66.1, with 17 industries reporting slower deliveries. Inventories fell by 4.9 percentage points to 49.1, the second decrease since January. The price index increased by 2.8 percentage points to 76.8. Backlogs grew by 5 percentage points to 55.7, with 11 industries reporting higher backlogs. All told, the service industries are expanding and will benefit U.S. consumers after the direct effects of the stimulus start to fade.

Payroll employment was weaker than expected in April. 266,000 net new jobs were created and data from March was revised down to 770,000 from the 916,000 reported last month. Employment in leisure and hospitality increased by 266,000 in April, following an increase of 770,000 in March. Financial services rose by 23,000 in April. Manufacturing employment edged down in April by 18,000, following a 54,000 gain in March. The motor vehicles and parts sector saw a 27,000 loss and 7,000 jobs were lost in wood products. Employment in construction was unchanged. Retail trade edged down by 15,000 in April, following a 33,000 gain in March. Both the unemployment rate, at 6.1% and the number of unemployed people, at 9.8 million were little changed from March. The report suggests that the Federal Reserve will not be moving soon.


China extended its impressive trade performance in April, with exports unexpectedly accelerating and import growth hitting a decade high, in a boost to the world’s second largest economy. Exports in dollar terms surged 32.3% from a year earlier. Analysts say the booming U.S. economy and the COVID crisis in India, which caused some orders to shift to China, likely contributed to the strong export growth. Imports were also impressive, rising 43.1% from a year earlier, the fastest growth since January 2011 and was bolstered by higher commodity prices. A great deal of the impressive year-ago figures was largely due to the negative growth a year earlier. Analysts expect that China’s GDP will slow from the record 18.3% expansion in the first quarter as the pandemic disrupts global supply chains, slowing the movement of goods and driving up shipment costs. A persistent shortage of semiconductors needed for a wide variety of products including consumer electronics and cars is also starting to hurt manufacturers, weighing on production. The country’s official manufacturing PMI fell to 51.1 in April from 51.9 in March. Companies surveyed said that problems such as chip shortages, problems in international logistics, a shortage of containers and rising freight rates is still severe. The shortage in semiconductors is exacerbated by sanctions against Chinese tech companies.

Important Data Releases This Week

The April NFIB small business optimism index will be released on Tuesday, May 11 at 6:00 AM.  The March index stood at 98.2, a modest reading but starting to climb. Labor is a problem for small business, but overall business activity is increasing.

The April CPI will be released on Wednesday, May 12 at 8:30 AM.  We expect inflation to continue to firm in April. Energy prices continue to climb and supply chain problems are adding to price pressures. Year-over-year comparisons are somewhat misleading as the economy was in recession a year ago. The CPI should rise 0.2% and the core index 0.3% for April.

The April PPI report will be released on Thursday, May 13 at 8:30 AM. March’s PPI increased 1.0%. Increases have been led by energy, but most material prices are up substantially. The PPI should increase 0.3% for April.

The April retail sales report will be released on Friday, April 14 at 8:30 AM. Retail sales has been volatile lately because of the stimulus checks. We will find out Friday if consumers clamped down on spending after the big 9.7% jump in March. If sales fall off, that does not necessarily mean the consumer is retreating. If sales come in at a projected 1.1% increase, it means the consumer is very much still in the game.

The April industrial production index will be released on Friday, May at 9:15 AM.  Industrial production increased 1.4% in March following a weather-impacted February. The factory sector continues to face a supply problem and some auto production plants are seeing some down time. Still, overall demand is strong. And we project a 1.1% rise in total IP for April.

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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.