Monday Morning Coffee: Economic Review of Data, May 19 – 23

By | May 27, 2014

Coffee and Economic ReviewWelcome 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.

Overview

The past week’s data shows that momentum in the economy is building. Housing data was better, with increases in both new and existing home sales. Regional manufacturing surveys showed strength. Consumer confidence has been building and this week’s release of the two major measurements of sentiment will likely trend upwards. Healthy job gains and the return of warmer weather are lifting consumer spirits and fueling spending. Manufacturing is gaining momentum and the look ahead at capital goods orders will help see the direction of business investment. However, the topline figure for durable goods orders is heavily influenced by aircraft orders and capital goods orders typically weaken the first month of a quarter, so some disappointment may be in the cards.

Housing has been weak, but the latest incoming data has been encouraging. Fundamentals remain supportive of a housing rebound, but doubts remain. Mortgage applications rallied 0.9% in the week ending May 16 and mortgage rates fell for a third week to 4.33%, the lowest reading since November. Despite the increase this month in starts and sales of existing and new home sales, housing activity remains below year-ago levels. Housing may fall short of expectations again in the second quarter.

The second release of first quarter national accounts data is released this week and growth may fall into an outright decline. However, the mix will likely favor a solid path of growth in the second quarter. The Open Market Committee of the Federal Reserve thinks that growth is rebounding in the second quarter and a majority sees the first interest rate hike next year. Risks to the outlook are nearly balanced. The economy is on a solid growth trend this quarter and momentum is building for a strong 3% rate in the second half of the year. Some monthly data has fallen short of expectations and hopes for a very strong Q3 have been downgraded. However, fundamentals are strong and even if housing continues to struggle and the consumers comes up a little short, 2014 will still be a very good year for the economy.

Data for week of: May 19-23, 2014

The U.S. Economy:

The Conference Board’s Index of leading economic indicators rose 0.4% in April, following a 1% increase in March and the eighth increase in nine months. Financial indicators drove the overall index higher, as the interest rate spread and leading credit components increased. Rising new private housing building permits also contributed to the gain. Five of the 10 components rose, compared to six in March. The report is consistent with an accelerating economy.

On par with expectations, existing home sales rose 1.3% in April to a 4.65 million units annualized pace. Revisions left the March pace unchanged. Total sales were down 6.8% from a year ago, the sixth consecutive year of decline and are tracking near the pace hit in 2012. Condo sales led the increase April increase, rising 7.2% m/m, while single-family homes rose 0.5%. The drop off in existing home sales has ceased, but signs of a robust recovery in housing are elusive. Fundamentals point to a recovery in housing, but the rebound has been disappointing. Mortgage rates will go up this year, but have stepped back a little and has been well below 5%.

Sales of new homes rebounded to 433,000 annualized units, a 6.4% m/m increase from a weak March performance. Sales are moving in the right direction, but remain soft and are down 4.2% from a year earlier. Months of supply declined to 5.3 and the median home price is down 1.3% y/y. Despite the April rebound, new home sales lack the vigor to drive a robust housing recovery. Inventories remain on the low side and that may be constraining stronger home sales. We still think housing will recover as the year passes. Confidence is up and job growth is healthy. However, the near term risks are less certain.

International:

German business confidence declined more than anticipated more than expected amid signs that growth in the euro area’s largest economy will slow this quarter. The IFO institute’s business climate index, based on a survey of 7,000 executives, fell to 110.4 in May from 111.2 the month before. Germany is the key for the 18-nation euro area, which is struggling to pick up speed amid near-record unemployment and subdued pricing power.

A gauge of China’s manufacturing by Markit Economics and HSBC rose to a five month high in May, suggesting that China’s lackluster growth may be turning the corner. The PMI index rose to 49.7, up significantly from April’s reading of 48.1. There were improvements in production, new orders and overseas purchases. All three components came in above the expansionary 50 mark. The bad news was employment, which drove the weakness down. The rise in the index suggests that there are signs of stabilization, as a result of the mini-stimulus and lower borrowing costs.

Data to watch this week: May 26-30, 2014

This week will be relatively light for economic data.

April durable goods orders will be released on Tuesday at 8:30 AM EST. Aircraft orders have been weak this month and the headline number will soften.

The May Conference Board’s Consumer Confidence Index will be released on Tuesday at 10:00 AM EST. We look for modest rebound in the index given the stronger job market.

GDP (First Quarter-second report) will be released on Wednesday at 8:30 AM EST. We look for growth to go negative because of a slower rate of inventory accumulation.

Pending Sales for April will be released on Thursday at 10:00 AM EST. Pending home sales should improve as the housing market is emerging from the harsh winter.


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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.