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 stood near record highs on Friday on strong Chinese and U.S. economic data that cemented expectations of a solid global recovery from the coronavirus-induced slump. European shares were expected to inch forward, with the Euro Stoxx futures up 0.1% and Britain’s FTSE futures up slightly higher. MCSI’s broadest gauge of Asia-Pacific shares outside of Japan, was up 0.25%. Markets in Asia were steady after China reported a record 18.3% growth in the first quarter and retail sales grew strongly last month. The data did little to change the view that its brisk expansion is expected to moderate later this year as the government turns its attention to reining in risk in overheating parts of its economy. In the U.S., the outlook was upbeat, with retail sales rebounding 9.8% in March, pushing sales 17.1% above its year ago level to a record high. First time unemployment claims dropped to the lowest level since March 2020, also brightening economic prospects. Despite strong data. U.S. bond yields declined to 1.529%, a five-week low.
The three main Wall Street indexes ended Friday higher for the day and week, with the S&P 500 and the Dow breaking closing records as investors took strong economic data and bank earnings as signs of momentum for the U.S. pandemic recovery. The Dow Jones Industrial Average rose 164.68 points, or 0.48% to 34,200.57, the S&P 500 gained 15.05 points, or 0.36% at 4,185.47 and the Nasdaq Composite added 13.58 points, or 0.1% at 14,185.47. For the week. The S&P rose 1.4%. the Dow added 1.2% and the Nasdaq gained 1.1%. Investor confidence on the road ahead remains steady, with the volatility index falling 1.9%, its lowest close in 14 months.
Data last week showed the economic recovery has gained momentum. After an influx of cash from stimulus checks and a return of warmer weather, the consumer went on a spending spree. Retail sales increased a strong 9.8%, the strongest gain since last May. Sales were up a stunning 17% above levels before the pandemic began. The March sales boom was boosted by the stimulus checks, which were more than double households received in January. This suggests some payback in May. The big question is, will the consumer keep spending when the stimulus fades? The consumer still has a large pile of savings and spending at service industries are likely to flourish in coming months. This could be a consumer boom for the history books.
Warmer weather helped industrial production rise from February’s weather-affected slowdown. Total IP rose 1.4% in March, not cancelling out the 2.6% decline in February. Manufacturing rose 2.7% in March, after a 3.7% decline in February. Supply chain constraints are holding back production. This is most evident in the auto sector, where a shortage of semiconductors is holding back auto output. Other supply chain constraints exist across industries as manufacturers try and obtain needed inputs. These shortages should persist for a few more months and eventually ease. Staffing appears to be easing some, as manufacturers hired the most workers (53K) in March, the most since last September.
The CPI rose 0.6% in March, a sign that inflation is heating up. Over the past three months, the CPI has increased at an annualized rate of 5.0%. A lot of the inflation push comes from energy, but the core CPI is trending up. Still, inflation is a process and some of these early increases may settle down. The Fed will likely wait to see if inflation is a temporary increase, or the start of a trend to start to move to dial things back.
Housing starts bounced back in March after severe winter weather weighed on it in February. Housing starts jumped from 1.457 million annualized units in February to 1.739 million in March. Home builders are seeking higher inputs from building supplies and higher costs across the board, signs of stress from the supply side. The higher costs may slow housing a bit as the year passes, but it will still be a healthy market for housing.
Next week we get a look at existing and new home sales and the leading economic index.
The U.S. Economy:
The NFIB Small Business Optimism Index increased from 95.8 in February to 98.2 in March, the second consecutive monthly gain. The index is now at its highest since November. The net percent of respondents attempting to hire rose from 18% to 22%. Fifty-nine percent of respondents reported capital outlays in the next six months, up two points from February. 20 percent of respondents plan capital outlays in the next six months, down three points from February. 42% of owners reported job openings that could not be filled, a record high. The percent of respondents who are raising selling prices increased 1 point to 26%. Seven percent of owners cute labor costs as their top business problem and 24% said labor quality is. The uncertainty index increased by six points to 81. The increase in the index is good news for small businesses, but labor issues and views about the economy are still making respondents uncertain.
The CPI rose 0.6% in March, led by a 5% surge in energy prices. Gasoline prices rose 9.1% in March. Food and beverage prices rose 0.1% for a third consecutive month. Excluding food and energy, the CPI rose 0.3%. On a year ago basis, the CPI was up 2.6% and the core was up 1.6%. Because the March increase was largely driven by energy, the Fed is not likely to become too alarmed. However, along with economic growth, inflation is accelerating. Fed policy makers will eventually start to move to slow price increases.
Retail sales soared in March at the fastest pace other than last May when businesses began to open. Sales grew 9.8% after falling a revised 2.7% in February and jumping 7.7% in January. Both January and March were impacted by consumers receiving stimulus checks. Gains were widespread. Sales of motor vehicles and parts grew 15.1% and gasoline stations saw a 10.9% increase. Excluding gasoline and motor vehicles, sales were up 8.2%. Sales at electronic and appliance stores increased 10.5% and sales at building supply stores rose 12.1%. Food service and drinking establishments increased 13.4%, as restrictions were lifted. The weakest sector was grocery stores, but sales did rise 0.5%. Year-over-year sales soared to 27.7% as year earlier spending was hurt by the closed economy. The outlook for consumption is decent as the economy re-opens. However, without stimulus, the results will be more modest.
Industrial production increased 1.4% in March after falling a revised 2.6% in February, less than expected. Manufacturing output rose 2.7%, reversing some of the 3.7% drop in February. Within manufacturing, motor vehicle and [arts output was up 2.8%, after dropping 10% in February. Weather played a large part in February’s weakness and March only made up some of the shortfall. A shortage in semiconductors held back auto manufacturing in both February and March. Utility output plunged 11.4%. Natural gas output, which is volatile, fell 21.1% in March. Mining output rose 5.7%, after dropping 5.6% in February. For the first quarter, total industrial production rose 2.5% at an annual rate. Manufacturing advanced 1.9% in the first quarter. The outlook for the industrial sector is still decent, but the shortage of semiconductors will hurt the auto industry. Supply is also an issue for other industries, but upward momentum is still projected to trend upwards.
Business inventories increased solidly in February, suggesting re-stocking may contribute to growth in the first quarter. Business inventories rose 0.5% in February after increasing 0.4% in January. Inventories were down 2.4% on a year ago basis in February. Retail inventories were unchanged, following a 0.3% decline in January. Motor vehicle inventories fell 2.6%, hurt by a shortage in semiconductors. Retail inventories excluding autos, increased 1.2%, following a 0.2% gain in January. Business sales fell 1.9% in February after rising 4.6% in January. The inventory-to-sales ratio rose to 1.30 in February, up from 1.27 in January.
Housing starts bounced back in March after severe winter weather weighed on it in February. Housing starts jumped from 1.457 million annualized units in February to 1.739 million in March. The gain was stronger than expected. Single-family starts rose 19.4% to 1.238 million. Multi-family starts increased 30.8% to 501,000 annualized units. Housing permits were up 2.7% to 1.766 million annualized units. The housing market is being fueled by demand for bigger accommodations with millions of Americans continuing to work from home. Housing supply is insufficient, with inventories of previously owned homes at record lows. A survey from the National Association of Home Builders showed increased confidence in April. Builders appealed for solutions to increase the supply of building materials as the economy runs hot in 2021. Despite the strong start, some analysts warn that starts are likely to moderate later this year.
China’s economic recovery quickened sharply in the first quarter to a record 18.35 from last year’s economic slump caused by the coronavirus virus. The world’s second largest economy is expected to grow 8.6% in 2021, according to a Reuters poll, up significantly from the government target of above 6%. China’s economy grow just 2.3% last year, the weakest expansion in 44 years. With the economy on more solid footing, China’s central bank it turning its focus to cooling credit growth to help contain financial risks. China’s rebound has been led by exports as factories race to fill overseas orders and more recently there has been a pickup in consumption. Retail sales increased 34.2% year-on-year in March, stronger than the 33.8% jump in the first two months of the year. Factory output grew 14.1% in March, slowing from the 35.1% surge in January-February period.
Important Data Releases This Week
The March existing home sales report will be released on Thursday, April 22 at 10:00 AM. The February existing home sales pace was hurt in February by severe winter weather. Sales fell 6.6% in February. The sales pace was still decent as mortgage rates are low and supplies tight. Pending home sales dropped 10.6% in February and the tightness of supplies may constrain sales for a bit. We think sales will rebound back to near 6.20 million.
The March new home sales report will be released on Friday, April 23 at 10:00 AM. New home sales were hit by February’s weather. Sales fell 18.2% in February to 775,000 units. A bounce back to 875,000 is expected for March.
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