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.
World shares slipped on Friday as tricky Brexit negotiations and uncertainty over U.S. stimulus talks capped riskier bets although COVID-19 vaccines made progress. European equites fell on Friday, with the broad Euro STOXX 600 down 1.1%. The MSCI world equity index, which tracks stocks in 50 countries, fell into the red. U.S. stocks were mixed on Thursday as near-term U.S. fiscal stimulus looks unlikely. Brexit also vexed sentiment after British Prime Minister Boris Johnson said that there was “a strong possibility” Britain and the European Union would fail to strike a trade deal. U.S. authorities voted overwhelmingly to endorse emergency use of Pfizer’s coronavirus vaccine while doses of a vaccine made by China’s Inova Biotech are rolling off a Brazilian production line. Demand for U.S. equities have been generally upbeat on equities, although jobs data pointed to weakness in the world’s biggest economy.
U.S. stocks closed moderately lower on Friday capping a week of unsteady progress toward another coronavirus package by Congress and unsuccessful negotiations to date on Britain’s trade relationship with the European Union. The Dow Jones Industrial Average finished 47.11 points, or 0.2% higher at 30,046.37, the S&P 500 retreated 4.65 points, or 0.1% to reach 3,663.46 and the Nasdaq Composite lost 27.94 points, or 0.2% to close at 12,377.87. For the week, the Dow lost 0.6%, the S&P lost 1% and the Nasdaq lost 0.7%. A bipartisan $908 billion pandemic relief package in Washington remained in limbo, even as weekly economic data showed a sharp rise in unemployment benefit claims, likely due to a rise in COVID-19 infections. Meantime, the Food and Drug Administration said it plans to complete and issue an emergence use authorization to BioNTech and Pfizer’s experimental COVID-19 vaccine, after an advisory panel recommended its approval on Thursday. The U.S, suffered the worst week for deaths and hospitalizations since the start of the pandemic.
Recent data shows a still resilient economy, but the recovery has lost momentum amid rising virus cases. Medical advisers at the FDA recommended approval of the Pfizer-BioTech COVID vaccine last week, clearing the way for FDA emergency authorization. The vaccine is undeniably a positive end to the year shaken by the virus. However, the disease is running rampant across the United States today and the vaccine will not be available to the public for months. Further fiscal support will likely be instrumental in ensuring that the recovery stays on course. Local governments have re-instated stay-at-home guidelines and mobility restrictions to try and curb the spread of the virus. With the economy slowing anyway, this is likely to affect spending. However, we still expect a decent holiday season, but the new year may bring in some restraint. Without additional fiscal relief, millions of Americans will face the new year without unemployment benefits. Further, an additional 853K workers, up 137K from the previous week applied for benefits, the highest weekly increase since March. Job openings have improved but remain 5% below February. The labor force has fallen by a whopping 4.1 million workers since February, as childcare and health concerns stopped millions from looking for jobs.
Optimism among small business owners has wavered recently as infections have increased. The NFIB small business optimism index fell from 104 to 101.4 for November. Earnings remain under pressure and expectations for the economy to improve fell from 27% to 8%. With costs increasing, businesses will likely raise prices after the pandemic starts to be controlled. The CPI rose 0.2% in November, still well under control. However, anticipating stronger demand down the road, energy prices have perked up. Inflation is likely to gain a little velocity in the second half of the year, but the slowness of recovery in the global economy will keep overall pressures restrained.
The outlook for 2021 is still decent, although we are likely to see a tough start. Despite political differences, most Americans agree that 2020 was a “crappy-year.” There is still a great deal of uncertainty centered around the progress against the virus. However, light is starting to appear in a dark sky. We are a long way from a pre-pandemic economy, but it appears we have found the road and finally an end is looking possible.
Next week, we get a look at industrial production, business inventories, retail sales and housing starts and permits.
The U.S. Economy:
The NFIB small business Optimism Index dropped in November as COVID-19 cases surged and states took action to contain the virus. The index fell from 104 in October to 101.4 in November. The net share of respondents expecting the economy to improve fell from 27% to 8%, highlighting the effect of this wave of infections on business expectations. This report does not cover the recent hope that a second stimulus package may be passed. Six percent of owners cited labor costs as their top business problem, but 24% said that the quality of labor was their top business problem. Capital expenditure expectations were unchanged from October. The report suggests that small businesses are still facing major uncertainties coming from the virus and the restrictions being imposed to contain it. A vaccine will be a major help for small businesses, although it will take time to contain it and spark greater business activity.
The need to replenish inventories will boost production over the next few quarters. Wholesale inventories rose 1.1% in October, after rising an upwardly 0.9% in September. Durable goods inventories rose 0.3%, while nondurable stocks were up 2.5%. Sales increased 1.1% from the revised September level. Total inventories were down 2.2% from a year earlier. The inventory-to-sales ratio was 1.31 in October, down from 1.32 in September. The I/S ratio has barely nudged over the past four months. Inventories are low across the board, suggesting upward pressure on production. Supply chains are finding it difficult to meet greater demand under constraints from labor markets and operating in the COVID-19 environment. A vaccine will help but it will take time to return to normal conditions.The CPI rose 0.2% in November, a bit higher than expected. Food prices declined 0.1% in November and energy prices were up 0.4%. Excluding food and energy, the core CPI was also up 0.2%. The headline CPI was up 1.2% from a year earlier and the core was up 1.6%. U.S. producer prices increased 0.1% in November, following a 0.3% advance in October. The PPI for energy increased 1.2% in November after rising 0.8% in October. Food prices advanced 0.5% in November. The core PPI increased 0.2%. In the last twelve months, the PPI was up 0.9% and the core was up 0.9%. Inflation remains well below the Fed’s 2% target and monetary will be restrained for quite some time.
Important Data Releases This Week
The November industrial production report will be released on Tuesday, December 15 at 9:15 AM. In prior cycles, manufacturing has taken a longer time to recovery from recession lows. In this cycle, industrial production has already retraced more than half its losses in output from the shutdowns in the spring. Goods spending is one of the reasons, an essential component of the consumer led revival, while spending on services remains weak. Also, factories are better suited for the implementation of social distancing, mask-wearing and other safety protocols. A full recovery in industrial activity will have to wait until the global economy picks up and that will take time to distribute the vaccine and corral the virus. Total IP grew 1.1% in October and is projected to increase 0.4% in November.
The October business inventories report will be released on Wednesday, December 16 at 10:00 AM. Business inventories are still low across the board even though they advanced 0.7% in September. There are still problems with supply chains. Factories are having a difficult time with labor in the pandemic and trying to be productive in a COVID environment. Already released, wholesale stocks rose 1.1% in October We expect business stocks to increase 0.9% for October.
The November retail sales report will be released on Wednesday, December 16 at 8:30 AM. Retail sales has made up all its lost ground since the pandemic as consumers have concentrated on goods and left services constrained. However, the pace has moderated recently, with sales only advancing 0.3% in October. With the original stimulus package fading and an additional one in limbo, we expect sales to decline 0.2% in November. Spending may be in for a few rough months before the virus starts to fade.
The November housing starts report will be released on Thursday, December 17 at 8:30 AM. The housing market has been hot, a surprise in a COVID economy. Low interest rates and pent-up demand has fueled the single-family market. The multi-family market has been basically unchanged since August. Demand remains strong, although some slowdown can be expected as mortgage applications have moderated. Housing starts are projected to equal an annual pace of 1.530 million for November, unchanged from October.
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