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.
Asian shares fell on Friday as record breaking coronavirus cases in thel U.S. states stoked concern about the economic recovery. MSCI’s broadest index of Asia-Pacific shares outside of Japan fell 0.74% on Friday. Australian stocks declined by 0.31% and Japanese stocks were down 0.58%. Shares in China fell 0.72% on Friday, the first decline in more than a week, as state media has discouraged investors from chasing the market higher and worries about Sino-U.S. tensions reemerged. Weakness in financial stocks has emerged with JP Morgan, Citigroup and Wells Fargo expected to post weak earnings this week.
The Dow rose on Friday on positive news from Gilead Sciences on their positive effect of their antiviral drug in treating COVID19 patients, despite another record-breaking day of new U.S. infections. The Dow Jones Industrial Average rose 369.21 points, or 1.44% to 26,075.3. The SD&P was up 32.99 points, or 1.05% to 3,85.04 and the Nasdaq increased 69.69 points, or 0.66% to 10,617.44. For the week, the Dow was up 1%, the S&P gained 1.8% and the Nasdaq ga8ned 4%. With little economic data released last week, investors focused on virus news and expectations of a dismal second quarter earnings, due out i9n coming days.
Details from the Ism’s non-manufacturing index was positive, with business activity jumping 25 points to 66 and new orders gained nearly 20 points to 61.6. The revival in economic growthy that began in late-April appears to be continuing and both ISM indexes surprised on the upside. The housing industry has benefitted from lower bond yields, one of the bright spots in the economy. Mortgage applications jumped 5.3% in the week ending July 3 and are running 33.2% ahead of their year-ago level. This bodes well for future home sales. Existing home sales slumped in April and May are likely to see stronger sales in coming months. The rebound may slow as many banks are starting to tighten credit conditions.
The PPI declined 0.2% in June, raising fears of deflation. Analysts expected a increase based on the increase in oil prices and some firming in the prices of industrial commodities. Fears of deflation added to worries about the economy as new COVID-19 cases are causing concerns about the economic recovery. Next week, we get a look at the CPI, industrial production, retail sales and housing start activity.
More than a million Americans are filing for insurance benefits every week. Jobless claims numbered 1.314 million in the week ending July 4, down only 99,000 from the previous week. Filings for Pandemic Assistance increased from 996,842 to 1.039 million. Continuing claims are declining g steadily and fell from 18.760 million in the week ending June 20 to 18.062 million in the week ending June 27. The insured unemployment rate dropped from 12.9% to 12.4%, down from the pandemic high of 17.1% but far higher than the Great Recession peak of 5%. Initial claims for unemployment insurance are likely to rise the next few weeks as states, counties and cities strive to get infections under control. How quickly they decline will depend on the trajectory of the virus.
The U.S. Economy:
The NAR pending home sales index skyrocketed 44.3% to 99.6 in May, regaining all of April’s steep losses as the cautious re-opening of states across the nation encouraged home buyers to re-enter the market. All census regions saw growing in May. National pending home sales are now down only 5.1% from a year earlier. The index remains lower than February’s 111.4 level. Inventories are hovering near the lowest levels ever recorded going back to 1999. This has allowed prices to increase even in the middle of the COVID-19 shutdowns. The 30-year fixed mortgage rates declined to a record low 3.13% in late June, fueling buyer activity. However, incomes must grow to keep up with price appreciation. Sale will track near 4.5 million annualized rate in 2020 but won’t reach precession levels until mid-2022.
Economic activity increased sharply in June as business re-openings unleased a wave of pent up demand. The IISM non-manufacturing index jumped by 11.7 percentage points to 51.7 in June, up from 45. 4 in May. The business activity index spiked by 25 percentage points to 66. Every business surveyed reported an increase in business activity during June, except other services. New orders jumped from 41.9 in May to 61.6. Employment improved from 31.8 to 43.1, still consistent with contraction. The supplier delivery index fell from 67 to 57.5, indicating slower supplier deliveries. Inventories increased from 48 to 60.7. Respondents noted that inventories were previously too low. The increase in the index is good news for the non-manufacturing sector. However, downside risks remain as coronavirus cases are increasing in some states and re-opening activity is being slowed or delayed. Employmemt remains in negative territory, suggesting caution among businesses.
Manufacturing’s recovery began in May as U.S. factory orders increased by 8% from April’s levels. The increase stopped the bleeding of the 13.5% decline in April and the 11% drop in March. New orders were still 10.3% lower than a year earlier. Excluding transportation factory orders grew by 2.6% after falling nearly 9% in April. Exclu8ding defense, orders increased by 7.6%. Durable goods orders jumped by 15.7% after a revised 18.3% decline. Durable goods orders were still down 13.7% from a year earlier. Construction machinery orders ticked up by 3.8%. while orders for machinery used in mining and oil and gas field plummeted by 18.8%. Factory shipments increased 3.1% after falling 14% in April and 5.5% in March. Core capital goods orders increased 1.6% in May after falling 6.6% in April and 1.3% in March. The report shows that manufacturing was battered in March-April but started to recover in May. Transportation equipment orders jumped by 82% in May but sat 31.7% lower than in May 2019. Manufacturing has a way to go to reach the prior peak.
Wholesale inventories declined 1.2% in May, following an 0.2% increase in April. Durable goods inventories fell 2%, while nondurable goods inventories inched up 0.1%. Wholesale sales rose 5.4% in May, after the deep 16.4% decrease in April. The inventory-to-sales ratio declined from 1.63 in April to 1.53 in May. Recovery from the COVID-19 recession started in May after April’s steep decline. However, comparisons to year ago levels show that the climb back to the past peak will be arduous. Apparel and petroleum sales are half year-ago levels in May and automotive wholesale sales were 30% lower.
The producer price index contracted 0.2% in June, the fourth decrease in five months. Final demand goods prices increased 0.2%, a significant deceleration from the 1.6% gain in May. Final demand service prices declined 0.3%. An outsized decrease in final demand services, plus a drop in machinery and vehicle wholesale prices drug down the index. The core PPI increased 0.3% in June. Food prices started to normalize in June, following hefty increases in March and April. Inflation will remain weak but is not likely to lead to actual disinflation.
Important Data Releases This Week
The June NFIB small business optimism report will be released on Tuesday, July 14 at 6:00 AM. The index has been gaining some lost ground and that process likely continued in June. The index is projected to rise from 94.4 to 95.5 in June.
The June CPI report will be released Wednesday, July 40 at 8:30 AM. Producer prices decreased 0.2% in June, raising fears about disinflation. We expect the CPI index to rise 0.1% in June, suggesting that inflation is positive but weak.
The June industrial production report will be released on Wednesday, July 15 at 9:15 AM. Industrial production rose 1.4% in May as factories re-opened. The pickup came almost entirely from a record 3.8% jump in manufacturing output. Motor vehicles and parts output increased 121%. We do expect another decent increase in production for the auto sector in June. Industrial production is projected to increase 4.1% in June.
The June retail sales report will be released on Thursday, July 16 at 8:30 AM. Consumer spending was in free-fall in March and April but roared back in May, rising 17.7%. We expect another decent bounce in June as more businesses re-opened. Sales are projected to rise 5.6% for June.
The June hou8sing starts report will be released on Friday, July 17 bat 8:30 AM. Housing starts made some progress last month, increasing to an annual rate of 974,000. The low mortgage rates will help housing activity in June, increasing to a 1.1 million rate.
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