FTR Monday Morning Coffee Blog — Economic Review of Week of March 31-April 4

By | April 7, 2014

latte_designWelcome 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.

Latest data: March 31-April 4


The solid employment report last week suggests the economy is rebounding from the weather woes of the last few months. Overall February economic data was mixed, but March data is coming in fairly solid, as the economy is bouncing back from its winter woes.  Although the first quarter will come in fairly weak, momentum is being re-gained, suggesting the economy will put in a solid second quarter. Nonfarm payrolls increased by 192,000, on par with gains over the last six months. Revisions boosted previous months’ gain and the average workweek lengthened. The level of employment growth suggests that we are rebounding to the same pace of growth we saw over the last half of 2013. Despite expectations of shifting to higher growth of 3% or better, so far, the economy is not showing signs of that much strength. Neither is it decelerating.

About a half a million people entered the labor force, a sign of stronger consumer confidence. The level of employment also suggests that businesses are becoming more confident, a plus for future employment growth and equipment investment. Manufacturing rose slightly, according to the ISM survey. The ISM nonmanufacturing index also rose, rebounding from the weather impact of the last few previous months. Factory orders were positive, but capital goods orders slipped, which could have been hurt by the cold weather lingering through much of February. The industrial sector looks stable, far from robust, but advancing in a positive direction.

Car sales surged to 16.4 million annualized units in March, supported by aggressive incentives and a weather payback. Vehicle sales averaged 15.7 million in Q1, slightly down from the first two quarters.

The nominal trade deficit widened to $42.3 billion in February from $39.3 billion in January. Exports fell slightly to $190.4 billion. This was likely a temporary hurdle, assisted by the harsh winter. Imports grew slightly, showing the gradual recovery in the U.S. continues. In all, the latest data shows solid economic growth going into the second quarter.

The ISM manufacturing index improved slightly in March, rising from 53.2 to 53.7. Details were mixed. Production bounced back 7.7 points to 55.9 after abnormal weather depressed activity the previous two months. With weather normalizing, supplier deliveries fell 4.5 points to 54. New orders increased 0.6 to 55.1. 11 industries reported growth in new orders, led by textile mills, transportation equipment, machinery and petroleum. There were declines in apparel, wood products and electrical equipment. Inventories were unchanged at 52.5 for March. The inventory-new orders gap, a proxy for future production, widened from 2 to 2.5. Despite the improvement, the gap remains shy of the level seen in the second half of 2013. The employment index fell 1.2 points to 51.1, its third decline in four months. The prices paid index fell from 60 to 59. The only commodity in short supply is helium. New export orders rose 2 points to 55.5, leaving it at par for the prior six months. Imports rose 1 point 54.5. The report suggests that manufacturing is shaking off the winter blues, but is not booming. Production is not expected to be as strong as the second half of 2013, as those quarters saw a significant inventory build. Inventories are regarded as more of a hurdle than a huge drag. Manufacturers still view inventories as being too low. We remain optimistic about final demand this year. The risks to manufacturing come from abroad, including the potential for Europe’s economy to underperform and a hard landing in China. Anecdotes are generally upbeat. Respondents in computer and electronic products, petroleum and fabricated metals noted a good start to the year. Chemicals noted an improvement in exports and one noted a short supply of plywood.

Vehicle sales rebounded in March after several months of winter-affected weakness. Sales equaled a seasonal adjusted annual sales pace of 16.4 million units, up from 15.3 million in February. The first quarter came in at 15.7 million units, about equal to the last two quarters of 2013. Automakers used plenty of incentives in March, trying to spur sales and reduce inventory. Car sales increased to 7.8 million units, while truck sales rose to 8.6 million. Car sales have been flat over the past year, while truck sales are at the highest level since mid-2007. The outlook is positive for vehicle sales. Employment will bounce back and financing is still low. There is pent-up demand, so there is upside potential. Estimates for auto sales this year range from 16.4 million to as high as 17 million.

Payroll employment increased by 192,000 jobs in March, following an upward revised 197,000 addition in February. January’s payrolls were also revised upward by 1,000 to equal 144,000. The unemployment rate held steady at 6.7%, as more workers entered the workforce. The strongest gains were in education/healthcare and business professional services. Goods producing industries added 25,000, down from the 40,000 in February. Construction added 19,000, about the same as in February. The average workweek increased to 34.5 from 34.3, but average earnings were unchanged. The report is favorable, as it shows companies are optimistic about the future. Private employment rose by 192,000 in March, the most in four months, after an 188,000 gain in February. Private employment, at 116.1 million, surpassed the pre-recession peak. As the year progresses, job gains will strengthen. Stronger employment gains, strengthen both consumer and business confidence and fuel spending. Job quality is an issue, as lower paying job creation is far outpacing higher quality jobs. The private sector is adjusting to regulatory changes, such as the Affordable Care Act.

Construction spending gained little ground in February, rising 0.1% from January. However, construction remains 8.7%, well above year earlier levels. Weather continues to play a role construction activity. Private residential construction fell 0.8%, but non-residential construction increased 1.2%. Public construction edged up 0.1%. The outlook for future construction is favorable.

Total orders for manufactured goods rose 1.6% in February after falling 1% in January. Durable goods orders rose 2.2% in February after a 1.4% drop in January. Orders for nondurable goods rose 1.0% after a 0.7% decline in January. Core capital goods orders fell 1.4% following a 0.8% advance in January. In the durable goods sector, most of the orders were concentrated in computers, industrial machinery and transportation equipment. The fall in capital goods orders is of concern, but may have influenced by the frigid weather that dampened economic activity across the country. Recent reports of regional manufacturing surveys and rising business confidence, point to a stronger trend in business investment than we’ve seen recently. Transportation equipment and investment continue to be a boon to manufacturing. The first quarter weakness in equipment investment is likely to be temporary. Fundamentals favor investment, as firms resume hiring and consumption accelerates back to trend.

The ISM nonmanufacturing index increased to 53.1 in March, up from 51.6 in February. The index fell 1.2 points in February, still in expansionary territory, but below the six-month average of 55.5. New orders increased to 53.4 from 51.3, but business activity fell slightly to 53.4 from 54.6. Employment made back into expansion mode after dropping the previous month. The bounce back in the services sector was expected. With the labor market strengthening, we expect the consumer and the index to show steady improvement.

Coming Up This Week:

Moody’s Analytics Business Confidence survey is released on Monday at 10:00 AM. Business confidence remains healthy, consistent with an economy growing near potential.

The NFIB Small Business survey comes out on Tuesday at 7:30 AM. Look for a small gain in small business optimism.

Initial claims for unemployment benefits are being released on Tuesday at 10:00 AM. Claims have bounced around since the weather warmed up. A small decline is projected.

The PPI report is released on Friday at 8:30. Look for a small gain in inflation, driven by core and food prices.

The University of Michigan’s Sentiment index for April is released at 9:55 AM on Friday. Sentiment measures are mixed lately. A small movement up or down is likely.

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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.