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 inched back on Friday but remained near record levels. MCSI’s broadest gauge of world stocks covering 50 markets dipped 0.1% on Friday and were up 5% for the month. Data on Thursday showed U.S. economic growth accelerated in the first quarter, fueled by massive government aid to households and businesses. That came against the back-drop of the Federal Reserve’s reassurance on Wednesday that it was not yet time to begin any discussions on changes to its easy money supply policies. With just over half of the S&P 500 companies reporting earnings, about 87% beat market expectations, according to Refinitiv, the highest level in recent years. For both the MSCI world index and the S&P 500, analysts expect earnings the next 12 months to be above its pre-pandemic levels. There are some negative signs. Infections in India have surged to a new record and France’s health minister said the dangers of the Indian variant must not be underestimated.
Wall Street ended lower on Friday as large tech stocks gave back some gains made earlier in the week. The Dow Jones Industrial Average fell 0.53% to end at 33,879 and the S&P lost 0.72% to 4,181.21 and the Nasdaq Composite lost 0.85% to 13,962.68. U.S consumer spending rebounded in March amid a surge in incomes as households received additional COVID-19 pandemic relief money from the government. The stimulus and a stronger public health picture is fueling pent-up consumer demand. Despite employment being 8.4 million jobs below its peak in February 2020, companies are struggling to find qualified workers. In response, companies are raising wages, further support for the economy.
U>S. GDP growth accelerated in the first quarter as consumers benefited from two rounds of stimulus and fixed investment, especially evident in the equipment, intellectual property and residential spending sectors. Real GDP increased at an annual pace of 6.4% in the first quarter, following a 4.3% increase in the fourth quarter of 2020. It was the second fastest increase in gross domestic product since the third quarter of 2003 and left output just 0.9% shy of its level at the end of 2019. It was the strongest first quarter since 1984. Personal consumption increased at a 10.7% annual rate, significantly higher than the 2.3% advance in the fourth quarter. Durable goods spending jumped 41.4% in Q1, while nondurable goods spending rose 14.4%. Residential investment increased 10.8%, while nonresidential investment advanced 9.9%. Investment in equipment rose 16.7%. Exports fell 1.1%. The economy has good momentum to continue through the year, but rates will slow as the stimulus fades. Employment may not return to pandemic levels before 2023. Inflation is picking up, but the Fed thinks some of this increase is transitory and they are unlikely to move soon.
More optimism crept into the Federal Open Market Committee’s post-meeting statement, but that does not imply a rate hike is coming anytime soon. A notable change was dropping the word “considerable” to characterize risks. This was likely due to news on the vaccination front. The statement still ties the economy’s path with the pandemic. Policy was referred a couple of times as supporting the recovery. This is likely the Fed trying to hammer home the point the recovery is far from complete and the central bank will be accommodative in policy for quite some time. Temporary factors are blamed on the recent acceleration in inflation. With all that being said, the Fed is in no hurry to move anytime soon.
Data last week showed the effect of the stimulus efforts on the consumer. The economy expanded at a 6.4% annual rate. The increase leaves the level of GDP close to pre-pandemic levels. Most major sectors of the economy expanded in the first quarter, but a particular boost came from consumers. U.S. households are flush with cash. Personal income jumped 21.1% in March, the largest increase in the series history. That boosted spending 3.6^, the third strongest increase in history. The savings rate increased to 21% from 13%, suggesting spending will continue at a healthy pace. The public health sector is lifting consumer spirits. As of April 29, about 38% of U.S. adults are fully vaccinated and 55% have at least one shot. National case counts have fallen below the 60k count and deaths and hospitalizations are down. The lower rates are allowing restrictions to be lowered and have boosted consumer confidence. Both the University of Michigan and the Conference Board’s indexes of consumer confidence soared to post-pandemic highs in April. Consumption will be the driver of the economy over the next few months.
Next week will be heavy for economic data. The ISM indexes will be released, as well as construction spending, vehicle sales, the trade deficit and factory orders and the important payroll report will add to understanding the state of the economy.
The U.S. Economy:
U.S. consumer confidence has improved in the past couple of months as the job market has improved, the public health picture has improved, and additional federal stimulus has boosted banking accounts. The Conference Board’s index of consumer confidence jumped from 109 to 121.7 in April. It was below 90 as recently as February. The assessment of the present situation jumped from 110.1 to 139.6. It was below 90 in February. Expectations edged higher, rising from 108.3 to 109.8. The labor market details provided some insight to rising consumer confidence. The labor market differential widened from 8 to 24.7. Confidence should remain at decent levels although the fiscal stimulus will fade. The labor market will continue to make gains but still has an uphill climb to make to reach pre-pandemic levels.
The National Association of Realtor’s pending home index inched up 1.9% in March, slightly rebounding from February but still hovering near the level reached last summer. The index inched up 1.9% to 111.4 in March. Homebuyers shrugged off slightly higher mortgage rates thanks to a accelerating labor market recovery and improved confidence. Sales rose in all census regions except the Midwest and rose the most in the Northeast. The national pending home index is up 23.3% on a year ago basis. Sales should remain healthy for the remainder of the year.
U.S. net exports will likely remain a drag on first quarter GDP growth. The advance nominal goods deficit widened from $87.1 billion in February to $90.6 billion in March. Nominal exports increased 8.7% and the gains were broad based, led by a 10.1% gain in industrial supplies. Nominal goods imports rose 6.8% in March. The recovery in the global economy will aid trade volumes throughout the year. Congestion at the nation’s ports have slowed some trade volumes but the situation is slowly easing. The strength of the American economy will fuel imports, while exports will catch on at a more modest pace.
Personal income jumped 21.1% in March, the strongest reading in the series’ 60-year history. The increase was driven by the hundreds of billion in transfer payments distributed as part of the American Rescue plan. Transfer payments increased 95% from February, similar to last April, when the Cares Act transfer payments were largely made. The increase in income helped boost personal spending up 3.6%, the third highest gain in history. Real spending topped its pre-pandemic level for the first time. The savings rate soared to 27.6% in March, up from 13.9% in February. The PCE deflator increased 0.5% in March, following a 0.2% gain in February. Energy prices rose 4.9% and food prices increased 0.2%. The core rate rose 0.4%. Base effects boosted the year-over-year index up 2.3% and the core was up 1.8%. The Fed had warned about the year-over-year comparisons as much of the economy was shut down in March 2020. The Fed will still view the jump in inflation as transitory.
Important Data Releases This Week
The April ISM manufacturing report will be released on Monday, May 3 at 10:00 AM. The ISM manufacturing index was at the highest level since 1983 in March. Most indictors advanced, notably the new orders and production indexes. The fiscal stimulus is boosting demand for consumer items and business demand is sturdy. This has led to supply shortages, which worsened by February’s weather and backups in trade caused by the blockage of the Suez Canal. We think the index will rise to 65 for April.
The March construction spending report will be released on Monday, May 3 at 10:00 AM. Construction spending fell 0.8% in April as severe winter weather hit activity. A 1.6% increase is projected for March as warmer weather returned. The residential side should continue to show strength, although sharply higher material costs and lack of labor will likely cool some activity. The nonresidential side is still being hurt by the pandemic and that will continue a few more months.
U.S. April vehicle sales will be released on Monday, May 3 at a varying time. Sales in March were strong at 17.7 million units. The return of warmer weather and the stimulus checks helped March’s sales. April’s sales will likely slip back to a still strong 17.0 million level.
The March trade deficit report will be released on Tuesday, May 4 at 8:30 AM. Trade volumes are improving but at a slow pace as congestion at the nation’s ports is slowing activity. The advance trade in goods report showed a widening trade deficit, but a decent jump in both imports and exports. The U.S. economic strength will favor imports. Exports will catch on as the global economy recovers.
The March factory orders report will be released on Tuesday, May 4 at 10:00 AM. The manufacturing sector remains strong, and March will also show a rebound from February’s weather constraints. Factory orders are projected to rise 1.4% for the month, stronger than February’s 0.8% advance.
The April ISM services index will be released on Wednesday, May 4 at 10:00 AM. The services sector was hit hard by the pandemic and the restrictions that were imposed on the economy. It does now appear the services sector is getting back on track. The services index sky-rocketed more than eight points in March to 63.7. What’s more, the new orders and employment indexes soared during the March. The index should rise to 66 during the month.
The April employment report will be released on Friday, May 5 at 8:30 AM. Employment soared by 916,000 in March and the unemployment rate fell to 6.0%. More robust gains are expected for April, with a projected gain of 950,000. The unemployment rate should fall to 5.9%.
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