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.
All three major Wall Street indexes posted record closing highs on Friday as firm expectations for an interest rate cut by the Federal Reserve continued to propel shares upward. The market is waiting for next weeks kickoff of the corporate earnings season. The S&P climbed above 3,000 for the first time. In his two-day testimony before Congress, Fed Chairman Jerome Powell said the U.S. economy was still under threat from a disappointing factory sector, tame inflation ad a simmering trade war and that the central bank stood ready to “act as appropriate.” The market is expecting a larger rate cut in this month but the likely course would be a 25 basis point cut not 50. The Dow Jones Industrial Average climbed 243.95 points on Friday, up 0.9% and capped a 1.5% increase for the week. The S&P rose 13.86 points on Friday, up 0.46% for the day and was up 0.8%.
Jerome Powell’s testimony before Congress this week gave the financial markets the spark needed to move upwards. Powell reiterated the message from the June FMOC meeting that the uncertainties surrounding the trade war and deteriorating global fundamentals are enough to rate at least one rate reduction. Powell addressed the expectations that low unemployment would translate into greater inflation, saying that inflationary pressures remain subdued and stated, “To call something hot, you need to see some heat.” Both major inflations gauges were restrained this week with the PPI for final demand and the CPI rose 0.1% for the month. The core CPI surprised with a 0.3% jump, but that followed four months of rising just 0.1%. This may be a hint of stronger than expected inflation but is unlikely to stop Fed policy.
The upcoming week will be busy with economic data and corporate earnings. We get a look at import and export prices, retail sales, industrial production, business inventories, housing starts and leading economic indicators.
Week of July 15-19, 2019:
June import and export prices will be released on Tuesday, July 16 at 8:30 AM EDT. We project import prices to decrease 0.5% in May, after declining 0.3% decline in May.
June retail sales will be released on Tuesday, July 16 at 8:30 AM EDT. We project that sales will climb 0.1%, following the 0.5% jump in May. Sales excluding gas and autos will rise 0.4%.
June industrial production will be released on Tuesday, July 16 at 9:15 AM EDT. We project total IP to rise 0.1% and manufacturing will rise 0.2% in June.
May business inventories will be released on Tuesday, July 16 at 10:00 AM EDT. We project business inventories to increase 0.4% for May, after rising 0.5% in April
.June housing starts will be released on Wednesday, July 17 at 10:00 AM EDT. Starts are projected to rise to 1.260 million units in June, down from 1.235 million in May. Permits are projected to increase from the 1.294 million level in May to 1.300 million in June.
June leading economic indicators will be released on Thursday, July 18 at 8:30 AM EDT. We project the indicators to rise 0.1% in June, the same rise as in May.
Week of July 8-12, 2019:
The NFIB small business index fell from 105.0 in May to 103.3 in June. Despite the retreat, the index remains elevated and above its historical average of 98. Details in June were mixed. The net percent of respondents planning on raising capital expenditures n the next six months fell from 30% I May to 26% in June. The net percent of firms planning on expanding employment declined from 21% in May to 19% in June. While this is better than the first few months of tis year, it is weaker than in the second half of 2018. According to ADP, small companies have been responsible for the brunt of the slowdown, while large and midsized companies have held up well. Companies with fewer than 150 employees shed 23,000 jobs in June and growth for 2019 so far is averaging 26,000 employees per month down from 64,000 in 2018. The net percent of respondents who expect the economy to improve in the next six months was unchanged at 16%. The share of respondents with at least one job that is hard to fill was 36% in June, compared to 38% in May. The NFIB’s measure of uncertainty increased to 87% in June, regarding credit conditions, future economic conditions, future sales and inventories. This was higher than 79% in May and the highest reading since November 2016. The index is holding up better than other soft data and would be consistent with an average of the ISM manufacturing and nonmanufacturing survey average of 55.9, compared to the actual reading of 53.4 in June. Price pressures remain muted. Manufacturing is not doing well but the service sector remains solid.
Wholesale stockpiles increased 0.4% in May, following a 0.8% surge in April. Durable goods inventories rose 0.3% in May and nondurables rose by 0.5%. Within durable goods, the automotive category led the biggest increase in inventories, up 1.8% for the month. Within nondurables, farm products led the pack, with a 3.5% increase in inventories. Total durable goods stocks are up 10.8% for the year, while nondurable goods inventories were up 2.8%. Wholesale sales inched 0.1% in May. This brought the inventory-to-sales ratio to rise to 1.35 months from 1.34. The automotive sector is keeping production up n that sector. Farm products are being hurt by Trump’s trade policies, which are depressing price and leading to weak sales. Nondurable goods sales fell 0.4% in May.
Producer prices for final demand increased 0.1% in June, following a rise of the same magnitude in May. The PPI for final demand goods dropped 0.4% in June, following a 0.2% decline in May. Energy prices have been a drag on the overall goods index the last two months. The core goods index was unchanged in June for the third consecutive month. On a year ago basis, the headline PPI for final demand was up 1.6% and the core goods index was up 1.4%. Consumer prices were also restrained in June, as the CPI rose just 0.1% for a second consecutive month. Energy prices fell 2.3% in June. The core index did surprise with a 0.3% increase in June, after posting 0.1% increase the preceding four months. The headline CPI was up 1.7% y/y, while the core was up 2.1%. The subdued inflation reading give the Fed some maneuvering rom to cut rates, expected at the end of July.