Low-Interest Rates and Low Inventories will Continue to Support Single-Family Housing

By | February 9, 2021

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 shares approached record highs on Friday and the dollar headed for its best weekly gain in three months, as progress in vaccine distribution and U.S. stimulus hopes prompted bets on further normalization in the global economy. The pan-European STOXX 600 was up 0.2% on Friday, though slower vaccination rollout in continental Europe compared with Britain and the United States tempered optimism. MSCI’s gauge of Asian shares outside of Japan rose 0.49% and Japan’s Nikkei rallied 1.5%. Expectations of a large stimulus by U.S. President Joe Biden also supported risk sentiment. The feeling is that the Democrats will go on their own and not compromise on a small fiscal package and the vaccine rollout is raising general hopes on the economy.

U.S. stocks extended their recent rally on Friday and the Nasdaq and S&P indexes scored their biggest weekly gains since the U.S. elections in early November, boosted by optimism over earnings, stimulus talks and vaccine rollouts. The Dow Jones Industrial Average rose 92.38 points, or 0.3% to 31,148.24, the S&P 500 gained 15.09 points, or 0.3% to 3,886.83 and the Nasdaq Composite added 78.55 points, or 0.57% to 13,856.30. For the week, the Dow gained 4.39%, the Nasdaq added 6.01% and the Dow added 3.89%. The Cboe Volatility index fell on Friday and had the biggest weekly point drop since the week ending Nov.6.

U.S. initial claims for unemployment insurance are improving again. U.S. initial claims for unemployment insurance benefits dropped from a revised 812,000 to 779,000 in the week ending January 30. The prior week was revised higher by 14,000 to 914,000. Continuing claims declined from 4.785 million to 4.592 million in the week ending January 23. Those claiming Pandemic Unemployment Assistance declined by nearly 55,000 in the week ending January 30 to 348,912 in the week ending January 30. Claims remain elevated and the labor market continues to struggle this year, although may be starting to improve as infections seem to be retreating. The numbers clearly point to one fact, that the labor market will not fully recover until the pandemic fades.

It was a week of much data and readings were somewhat mixed. Manufacturing continues to grow at an impressive rate but has not escaped the recent slowdown. The ISM manufacturing index slipped to 58.7 in January led by a decline in new orders, which fell 6.4 points to a still decent 61.1. Production fell 4 points to 60.7. Still, the outlook for manufacturing is not bad. Inventories are low and although consumer spending on goods is flattening, the stimulus checks should be a support. Labor and supply chain bottlenecks are still constraints. The ISM service index rose to 58.7, despite expectations for a decline. New orders and order backlogs moved higher. Business activity moved slightly lower. Employment jumped to 55.2, the highest since the pandemic struck. Some service industries are still very weak in restaurants and bars, but others like construction are doing fine.

The residential sector continues to support construction spending. In December. Construction spending rose 1.0%, on the strength of the residential sector, which rose 3.1%. Nonresidential construction remains weak, falling 0.8% for the month. Low interest rates and low inventories will continue to support single-family housing, but it will take some time before the nonresidential sector comes alive. Auto sales improved to 16.6 million in January from 16.3 million in December, suggesting the consumer is still in the game. Next week is light on the economic calendar. We get a look at the NFIB small business optimism index, CPI, JOLTS data and wholesale inventories.

Latest Data

The U.S. Economy:

Construction spending increased 1.0% in December, up 5.7% from December 2019. Total residential construction spending advanced 3.1% in December, largely driven by the single-family housing sector. Single family construction spending increased 5.8% in December, up 23.5% from a year earlier. The multifamily component only increased 0.1% for the month, but was up 17.8% from a year ago. Nonresidential construction spending fell 1.7% in December, down 9.8% from December 2019. The biggest losses on a year ago basis, are in lodging (-24.6%), amusement and recreation (-22.6%) and manufacturing (-17.6%). Public construction spending advanced 0.8% in December, up 3.0% from a year ago. The outlook for 2021 calls for strength in the single-family sector. Nonresidential construction spending will continue to lag until the pandemic fades. The public sector will likely see modest advances.

The ISM manufacturing index fell from 60.5 in December to 58.7 in January. Details were generally weaker in January as new orders and production both declined. There was a small increase in employment and supplier deliveries continue to slow. New orders fell to a still decent reading of 58.7 in January, down from 60.5 in December. Five out of eighteen industries reported an increase in new orders and was unchanged. Production fell from 64.7 to 60.7, with 12 industries reporting growth in output. Supplier deliveries rose to 68.2 from 67.7, indicating slowing deliveries. Supply chains are having difficulties in meeting factory needs due to labor and transportation constraints, in part due to COVID-related problems. New export orders fell from 57.5 to 54.9, as restrictions in Europe and elsewhere are slowing production. Manufacturing is expected to remain positive in 2021 and conditions will improve as the pandemic fades. However, that will be a slow process.

The ISM services index increased from 57.7 in December to 58.7 in January. The January reading was the highest since February 2019. Details were favorable in January, with new orders and employment inching forward. Business activity fell slightly by 0.6 of a percentage point to 59.6. 10 industries reported growth in business activity. New orders increased 3.2 percentage points to 58.6, with eight industries reporting higher new orders. Supplier deliveries fell by 5 percentage points to 57.8. Service industries are mixed, with weakness in food services and accommodation, health care assistance and education. There was better news for construction and other services. Retail is looking up modestly. Service industries will look better as the pandemic starts to fade and restrictions are lifted.

U.S. vehicle sales totaled 16.6 million units at an annual pace in January, slightly above the 16.3 million pace in December. For the month of January, light truck sales totaled 12.9 million at an annual rate versus a 12.6 million pace in December. Car sales rose to 3.7 million from 3.6 million in December. The light truck market share stood at 77.7% in January, dominating the car share of 22.3 %. As recently as February 2013, the split was about even. Domestic vehicles accounted for 10.1 million units in January versus 9.9 million in December. Vehicle sales are expected to track slowly to the 17 million mark in 2021. Sales are expected to top 16 million the next few months.

The U.S. factory sector is showing solid momentum. Factory orders increased 1.1% in December, after rising 1.3% in each of the prior two months. Shipments rose 1.7% in December, following a 0.8% November increase. Unfilled orders fell 0.3%, down nine of the last ten months. The unfilled orders-to-shipments ratio was 6.28, down from 6.40 in November. The I/S ratio was 1.39, down from 1.41 in November. Orders were boosted by strong demand for machinery, electrical equipment, appliances and computers, as well as fabricated and primary metals. Core capital goods orders increased 0.7% in December. The manufacturing sector has been solid, but spending is starting to slip. Service spending will rise as the distribution of vaccines to fight the coronavirus picks up. This is expected to slow the manufacturing momentum.

U.S. exports were a drag on fourth-quarter GDP growth. The trade deficit narrowed from $69 billion in November to $66.6 billion in December. Exports increased by $6.2 billion to $190.0 billion in December, while imports rose by $3.8 billion to $256.6 billion. For 2020, the goods and services deficit rose by 17.7% to $101.9 billion. Exports of goods increased by $6.0 billion to $133.5 billion in December, with increases in industrial supplies, foods, feeds and beverages, capital goods and automobiles. Imports of goods increased by $3.1 billion to $217.7 billion in December, with increases in industrial supplies, automobiles and consumer goods. We expect a modest weight on growth earl in the new year as imports of goods will outweigh exports. This is because of the stronger increase in economic activity than some of our trading partners and the uneven return to normal of the global economy. Over time, as the pandemic fades, trade volumes will pick up and the normal ratio of imports to exports will resume. The return of the global economy will take some time, as the pandemic will not fade everywhere quickly, or evenly.

Payroll gains were weaker in January than expected, rising by only 49,000, following a revised loss of 227,000 in December. The job losses in December were the first since April and came as the badly beaten service sector dropped by nearly 500,000 as new restrictions were imposed at restaurants and bars due to rising COVID infections. The unemployment rate did fall to 6.3%. Employment in professional and business services did rise by 97,000, with temporary help services accounting for most of the gains (81,000). Employment in management and technical series did increase by 16,000 in January. Other measurements of employment released recently were more positive. The ADP report showed an increase of 174,000 in January and initial unemployment claims improved to a two-month low at the end of January. The labor market should improve as vaccinations increase and restrictions are relaxed. Still, it may take several years to fully heal from the pandemic.


China’s factory sector grew at the slowest pace in more than five months in January, hit by a wave of COVID infections, but still in lime with the ongoing recovery in the world’s second-largest economy. The official manufacturing PMI fell to 51.3 in January, down from 51.9 in December. It did remain above the expansionary 50 mark. China’s GDP grew 2.3% on year in 2020, making it the only major economy in the world to avoid a contraction. New export orders slipped to 50.2 in January, down from 51.3 in December. In January, China reported more than 2,000 cases of the coronavirus. While the number is small compared with other countries, but authorities locked down several major cities of tens of millions of people ahead of the Chinese New Year. Other economic indicators such as trade to producer prices, suggest modest improvement in industrial activity in coming months.

Important Data Releases This Week

The January small business optimism index will be released on Monday, February 8 at 6:00 AM. The index has flattened in recent months as COVID infections increased and uncertainty over the election were constraints. We look for index to increase slightly in January to 97.9 on stimulus and vaccine prospects.

The January CPI report will be released on Wednesday, February 10 at 8:30 AM. Inflation is awakening but largely confined to energy lately. The CPI rose 0.4% in December. There is still considerable slack in the economy, with the core rate only rising 0.1% in December. We look for total COI to rise 0.2% in January and the core will rise only 0.1%.

The December wholesale inventories report will be released on Wednesday, February 10 at 10:00 AM. Inventory growth has been constrained by production constraints, involving labor market issues and the COVID impact. Wholesale stocks will rise another 0.1% in December.

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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.