FTR Monday Morning Coffee Blog — Economic Review of April 7-11

By | April 14, 2014

Coffee and iPadCharts

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.


The U.S. economy appeared to regain some momentum in March, pointing to stronger growth this quarter.  The job market may have picked up additional strength in April, as initial claims fell sharply to a seven-year low.  Our preliminary estimate suggests that April job creation may go north of the 200k level in nonfarm payrolls.  The economy will get a boost this quarter as weather normalizes and the fiscal drag fades.  Data on sales, output, and job creation suggest we will see GDP growth of 3% or more in the second half of the year.

Inventories rose at twice their usual rate in the second half of 2013.  The wholesale inventory report suggests that stockpiles did not subtract from growth in the first quarter as much as feared and some of this inventory build was needed.  This implies stronger production in Q2 and stronger overall GDP growth for the quarter, as well.

The minutes of the March FOMC meeting were dovish and showed policymakers were worried about slack in the economy.  There is little indication that rates will rise soon after the end of quantitative easing ends.  The minutes also showed that some policymakers were worried about financial stability.  This may prompt the Fed to cut asset purchases by $15 billion in order to end the program by December, rather than early 2015.

The University of Michigan’s sentiment index rose 2.6 points, the highest reading since July and suggesting consumers are shaking off the winter blues.  Inflation picked up in March with a strong advance of the PPI index.  The advance was fueled by services.  Commodity prices are restrained and will limit the advance of overall inflationary pressures.  Fed policymakers were worried about the lack of inflation in the economy.  This may assuage some of their fears.  Financial market conditions are becoming turbulent and somewhat less supportive for growth.  The recent slide in the stock market does not seem to correspond with economic data.  For a time, the stock market and the economy are heading in different directions.

Overall, the economy is ready to bounce back after a forgettable first quarter.  Incoming data on housing starts, retail sales and factory production this week will find the economy regaining its strength.  Retail sales will be strong supported by the healthy vehicle sales number recently reported.  Housing starts will show a bounce back after weather depressed building in parts of the country.  We look for a solid gain in industrial production and business inventories could surprise changing the view of both first and second quarter GDP.  The data will show an economy in full swing and ready to hit the 3% mark fairly soon.

Latest data: April 7-11

The U.S. Economy:

Initial claims for unemployment insurance benefits fell by 32,000 to 300,000 in the week ending April 5.  This was the second decline in two weeks and puts the initial claims at the lowest level since 2007.  The report suggests job growth in April in excess of 200,000.  Hiring is likely to pick up the pace in Q2.  Some of this strength is weather related, but fundamentals suggest healthy gains in employment this year.

The minutes of the March Federal Open Market Committee were dovish, as policymakers worried about the lack of slack in the economy.  There were little indications that rates will rise soon after quantitative easing ends.  It appears that Janet Yellen’s comment that rates would rise six months after QE ends was an off the cuff comment, rather than a consensus view.  There was also broad support for moving from a quantitative to a qualitative forward guidance approach.

Small business sentiment firmed in March.  The NFIB Small Business Optimism Index added 2 points to put it at 93.4.  The rebound was led by a large surge in sales expectations over the next six months.  Small companies also indicated that they are comfortable with inventory levels.  The employment index fell slightly, but most companies plan on raising compensation for existing employees.  Small companies still feel like the economic recovery is lagging for them.

Producer prices jumped 0.5% in March, reversing from the 0.1% decline in February.  The increase was driven by services.  Commodity prices are being restrained by slow growth in China and a pickup in global production facilities, started in the “super-commodity” cycle in the early 2000s.  These facilities got a delayed start in the Great Recession.  Inflation will remain mild, but may pick a little velocity, as the global and domestic economies gain strength.  Gasoline prices have increased significantly over the last two months, but are losing momentum.  Growing U.S. production and the return of some oil from Libya will help curb global prices.

The University of Michigan’s Consumer Sentiment index rose 2.6 points in April to equal 82.6, a six year high.  This was the best reading since July and suggests consumers are shaking off the effects of the long bitter winter.  The index was carried forward by brighter assessments of current and future conditions.  If the initial unemployment claims are a clue, April employment gains will lift consumer confidence higher, keeping spending on an upward trend.


The Bank of Japan refrained from adding to the large amount of monetary stimulus as Governor Haruhiko Kuroda said that the blow to the economy from last week’s sales-tax increase will fade during the summer.  The BOJ is gauging the effect on the economy after last week’s 3% rise in the sales tax, the first since 1997.  The tax increase is expected lower second quarter growth significantly, but then start to recover.

The United Kingdom’s industrial production rose more than forecast, rising 0.9% in February.  Manufacturing rose 1%.  The jump in February was the biggest in eight months and points to healthy economy.

China’s exports fell 6.6% in March, while imports declined 11.3% from a year earlier.  The sharp drop raised fears about the extant of China’s economic slowdown.  The numbers are likely distorted by year earlier comparisons.  Data in 2013 was partly inflated by the practice of over-inflating invoices aimed at disguising capital inflows.  Regulators started a crackdown on those practices last May, leading to a slump in overseas shipments.  Taking into account those distortions, Nomura Securities estimated that exports probably rose between 5 and 8 percent in March, while only growing 3% in the first two months of the year.  Those numbers show a slowdown, but not nearly at the rate of the headline figure.  China will likely not hit its GDP target of 7.5% this year, but will still likely come in near 7%.

Next Week: April 14-18

This coming week will be relatively heavy for economic data.

Retail Sales for March is released on Monday at 8:30 AM.  Look for a healthy retail sales report.  Spending will be led by autos.  There are concerns about the strength of spending heading into Q2.

Business Inventories is released on Monday at 10:00 AM.  We look for a slower build in inventories than the recent trend and a lower I/S ratio.  Inventory data will change the view of GDP.

The CPI report is released on Tuesday at 8:30 AM.  Food prices are adding upward pressure on inflation, but the total effect is small.  Inflation is still weak

The NAHB Housing Market Index for April is released on Tuesday at 10:00 AM.  Look for a bounce back as consumer traffic is picking up.

New Residential Construction and Permits is released on Wednesday at 8:30 AM.  The March rise will end three monthly declines.  Permits have been outrunning starts for several months.

Industrial Production is released on Wednesday at 9:15 AM.  Look for a solid gain in industrial output.  Weather will boost utility output.

The Beige Book is released on Wednesday at 2:00 PM.  Look for more evidence of a recovering economy.

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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.