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 Nasdaq closed above 16,00 for the first time on Friday, its second straight record finish powered by technology stocks, while pandemic jitters sent the Dow to its fourth losing session in a row. The Dow Jones Industrial Average fell 268.97 points, or 0.75% to 35,601.98, the S&P 500 lost 6.58 points, or 0.14% to 4,967.96 and the Nasdaq Composite added 63.73 points, or 0.4% to 16,057.44. Both the Nasdaq and the S&P 500 index had a winning week, up 1.2% and 0.3%, respectively. Friday’s fall in the Dow was caused by banking, energy, and airline stocks slumping on fears that European countries, battling a resurgence in COVID cases, could follow Austria in moving towards a full lockdown. In addition to COVID fears, investors usually start to shift assets this time of year to safer havens for the run to the end of the year.
The holiday shopping season was off to an impressive start with retail sales jumping 1.7%, the largest gains since the stimulus checks were issued last March. Non-store retailers led the charge with a 4.0% advance and the holiday season looks to be impressive. October’s increase put year-over-year sales up an impressive 14.8%. Despite the strong start, there are a couple of items that must be considered that may cast a shadow on the important American consumer. First of all, it is widely known that supply chains are entangled and inventories are low and some sales in October were “pulled-forward” in order to secure popular items. Also, the trend to shift “Black-Friday” specials earlier in the year. Seasonal adjustments have not caught up with this trend and in three out of the last four years, a strong start to shopping led to weaker November and December totals.
Another factor to consider is that inflation is at a 30-year high. It is important to remember that retail sales are measured in nominal terms. Although the total numbers look impressive, the consumer is getting a lot less “bank-for-the-buck.” Notably, sales of motor vehicles and parts were up 1.8% last month, but prices were up 1.9%. Gasoline station sales were up only 3.9%, even as prices were up 6.1%. Spending at restaurants was flat despite the biggest price jump (0.8%) in 40 years. In other words, spending is up but the impact is muted.
Similar to retail sales, the October industrial production was not quite as strong as the 1.6% increase in the topline number. Despite problems in supply chains, production did reach a new cycle high. The bulk of the increase came from a rebound in mining and energy-related industries that were closed due to the impact of Hurricane Ida. The more persistent problem to production is the entangled supply chains. There was hopeful news in the fact that motor vehicles and parts production jumped 11%. However, production is still down 6.5% pre-COVID and the supply chain shortages will linger well into mid-2022.
The inability of supply to keep up with demand is evident in the housing industry The NAHB’s index is at a six-month high in November, but starts fell 0.7% in October, as builders struggle to find material and labor to build homes. The total number of housing units currently under construction rose to 1.45 million in October, the most since 1974. With building permits rising 4.0%, the total number of houses authorized but not started rose to 265,000, a series high.
This week, we get a look at new and existing home sales, durable goods orders, and personal income and outlays.
The U.S. Economy:
Business inventories increased 0.7% in September, a better-than-expected outcome. Inventories were up 7.5% from September 2020. Among the categories, manufacturing inventories rose 0.8%, retail fall 0.2%, and wholesale stocks increased 1.4%. Inventories increased 7.4% in August. Sales increased 0.9% in September and were up 15.5% from September 2020. The inventory=to-sales ratio came in at 1.26 in September, down from the 1.35 reading in September 2020.
Retail sales remained strong in October although there is evidence that shoppers started holiday shopping early and there could be some disruption in seasonal activities. Also. Retail sales are presented in nominal dollars, so inflation may be boosting spending. Sales rose 1.7% in October. Excluding autos, sales also rose 1.7%, as autos were supported by the partial rebound in auto sales during the month. Strength was widespread, with drug and apparel stores the only major segments posting declines. Growth was led by non-store retailers, gasoline stations, and electronic and appliance stores, all with growth near 4%. Year-over-year growth rose from 14.3% to 16.3%. The 3.9% increase in gasoline station sales came as prices at the pump climber more than 60% in the last year. Several major retailers noted that Christmas spending started early as fears that supply chain shortages and clogged ports might limit choices. This could lead to a slowdown later in the shopping season, although most projections are foreseeing a strong holiday season.
Industrial production bounced back in October after the lingering effects of Hurricane Ida were a significant weight in September. Industrial production rose 1.6% in October, following a 1.3% decline in September. At 101.6 of its 2017 average, total industrial production was 5.1% above its year-earlier level and at its highest reading since December 2019. About half of the increase in total IP in October reflected a recovery from Hurricane Ida. Mining shot up 4.1% in October after plunging 2.3% in September and utilities increased 1.2% in October after falling 3.7% in September. Manufacturing rose 1.2% in October after falling 0.7% in September and declining 0.3% in August. Motor vehicles and parts output jumped 11%, following September’s 7.1% decline. Manufacturing increased 1.2% in October, excluding the auto sector, output advanced 0.6%. All major market groups posted gains in October, with the largest increases were for materials, consumer goods, and defense and space equipment. A strike against a major manufacturer caused weakness in machinery. The index for petroleum and coal products moved up 5.0%, largely reflecting a return to operation for many chemical and energy facilities that had been offline due to Hurricane Ida. Supply chain disruptions will continue to limit manufacturing for many more months. Inventories are low and will help boost production in 2022.
U.S. residential investment has softened recently but demand is not a cause for concern. Housing starts fell 0.7% to 1.52 million annualized units. 8Starts in September were revised lower to 1.53 million annualized units. The decline came mainly in the single-family sector, where starts fell3.9% to 1.039 million annualized units. Multi-family starts were up 7.1% in October to 481,000 units. Leading indicators improved in October, as permits were up 4%. Single-family permits increased 2.7% and multi-family permits rose 6.6%. The number of houses authorized for construction but not yet started jumped to a 15-year high, reflecting the disruptions to the housing market due to an ongoing shortage of materials and labor. Homebuilding has essentially been treading water this year as builders battle material shortages and higher prices for materials. The index from the National Association of Homebuilders showed confidence among single-family homebuilders rose for a third straight month but noted that “supply-side challenges, including material bottlenecks and lot and labor shortages, remain stubbornly persistent.”
Important Data Releases This Week
The October existing-home sales will be released on November 22 at 10:00 AM and the new home sales report will be released on Wednesday, November 24 at 10:00 AM. Demand for housing remains robust. Existing home sales jumped 7% in September to a 6.29 million annualized pace, the strongest since March. New home sales jumped 14% in September to 800K. The increase suggests that the summer slowdown had more to do with limited inventory and supply and labor shortages for builders than faltering demand. We do expect some pullback in October, with existing homes falling to a 6.22 million unit annual pace and new home sales will moderate 0.7% to 794K. The slightly higher mortgage rates in October and the problem with price suggest some backtracking for October. With long project timelines, builders will keep busy the next couple of years. However, interest rates will be moving up.
The October durable goods report will be released on Wednesday, November 24 at 8:30 AM. Durable goods orders slipped 0.3% in September, mainly due to the volatile transportation sector. Aircraft orders for Boeing were just half the normal trend in October, suggesting more weakness for aviation for that month. However, auto production picked up 11% for the month, but it is a little early to see if this is a trend. Given the supply chain problems, we still see some weakness in production, with total orders rising just 0.2% for the month.
The October personal income and outlays report will be released on Wednesday, November 24 at 10:00 AM. The 1.0% decline in personal income in September came from a waning stimulus. The enhanced unemployment benefits ended that month. As benefits continue to decline out of the income calculations, income will be weak, but positive, at a projected 0.2% advance. Salaries and wages are still on a positive trend. Spending will be positive, but inflation is eating into gains. Personal spending rose 0.6% in September, but prices limited it to a 0.3% real gain. We see a 1.2% advance in spending but with a projected 0.5% rise in the PCE deflator, the real increase in spending will be around 0.7%.
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