Pandemic Unemployment Assistance Decreased More than 85,000

By | April 12, 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.

Overview

Global stocks held firm near record highs on Friday as receding inflation fears in the United States pushed down bond yields and lifted Wall Street. Softness in Chinese shares capped gains in Asia. MCSI’s broadest gauge of world stocks set a record in the Asian session and last stood almost flat. Japan’s Topix gained 0.6%. Benchmark 10-year Treasury yield held close to Thursday’s two-week trough near 1.6%, which lifted U.S. tech shares and powered the S&P 500 to a record close. Yields had surged to the highest since January of last year at 1.776% at the end of March as a string of U.S. data stoked fears of a spike in inflation that could force the Federal Reserve to raise interest rates sooner than policymakers had so far signaled.

The S&P 500 and the Dow rose on Friday to close at record highs, posting a third straight weekly rise partly on a lift from growth stocks. There was a late-day rally ahead of quarterly earnings season, which begins the following week. A pullback in the 10-year Treasury yield from the 140month high in late-March has encouraged buying in growth stocks. The Dow Jones Industrial Average rose 297.03 points, or 0.89% to 33,800.6, the S&P 500 gained 31.63 points, or 0.77% to 4,128.8 and the Nasdaq Composite added 70.88 points, or 0.51% to 13,900.19. For the week, the S&P rose 2.71%, the Dow advanced 1.96% and the Nasdaq climbed 3.12%. Data showed U.S. producer prices increased more than expected in March, bringing the largest increase in nine-and-a-half years. Many investors expect higher inflation as vaccine rollouts help the U.S. economy rebound from lockdowns. Investors showed little concern as the Federal Reserve has maintained it will allow inflation to overshoot its target.

Last week’s economic data was mainly robust. The ISM Services index jumped to 63.7, signaling the fastest pace of expansion in the index’s 24-year history. The strong report did reflect some obstacles, mainly longer delivery times. Along with stronger demand, prices continue to rise. The PPI rose 1.0% in March, sending the year-over-year rate to 4.2%, the fastest pace in nearly 10 years. While some of that number can be attributed to year-ago rates, the inflation pace is quickening. PPI inflation since the start of the year is rising at a 12% annualized rate, the past three months. That pace will attract attention.

Supply problems are an issue. Imports declined $1.7 billion in February, largely reflecting a 10.7% decline in autos and parts. This is not reflecting in the demand numbers as auto sales hit a three-and-a-half year high in March. Even before the six-day blockage of the Suez Canal, congestion at the ports of Los Angeles and Long Beach, which account for a third of U.S. container imports, caused container ships to anchor offshore to available port space. The global shortage of semiconductors has constrained auto imports and domestic production. Ford announced that six plants will be idled for various time periods in April due to semiconductors and other automakers will likely also lose production time this month. Congestion may also be holding down export traffic, but the uneven recovery of the global economy is likely the main reason exports have not caught fire.

Initial claims for unemployment insurance benefits increased from 728,000 to 744,000 in the week ending April 3. Continuing claims barely moved, dropping from 3.75 million to 3.734 million in the week ending March 27. Those claiming Pandemic Unemployment Assistance decreased more than 85,000 to 151,752 in the week ended April 3. Claims remain below the 1 million mark for a third straight week after clocking higher every week since the pandemic began. Claims are slowly getting better but the speed of the recovery in the labor market is still modest. There are still large numbers of unemployed and considerable slack in the labor market, a main factor the Fed plans on being quiet for a prolonged period.

Next week we get a look at the NFIB small business optimism index, retail sales, industrial production, business inventories and the CPI.

Latest Data

The U.S. Economy:

The ISM service index increased from 55.3 in February to 63.7 in March, suggesting the nonmanufacturing sector of the economy picked up speed in March. Details were mostly favorable, with business activity, new orders and employment providing the bulk of support for the topline index increase. All 18 industries reported growth in March. The business activity index hit an all-time high of 69.4 in March, an increase of 13.9 percentage points from the February reading of 55.5. 17 industries out of 18 reported an increase in business activity in March. New orders also registered an all-time high of 67.2 percent, an increase of 15.3 percentage points from Februarys reading up 51.9%. 17 industries reported an increase in new orders for the month. The employment index rose 4.5 percentage points to 57.2, with 10 industries reporting higher employment. The supplier delivery index registered 61 percent, up 0.2 from February, with 14 industries reporting slower deliveries. Prices paid rose 2.2 percentage points in March, rising to 71.8. All 18 industries reported higher prices in March.

The ISM services index shows a broad advance for the service economy after a partly weather-impacted slowdown in February. Respondents noted logistic delays and uncertainty are creating problems with suppliers and inventories. Shipping delays at the L.A. and Long Beach ports have contributed to longer lead times. Cold weather in Texas in February hurt several component manufacturers for building materials. The cold weather in February has hurt suppliers and they are seeing price increases. The supply issue saw some slight improvements, but the supply situation is not likely to make much progress until Q3 at the earliest.

The nominal trade deficit widened from $67.8 billion in January to $71.1 billion in February. Nominal exports fell 2.6% after steadily rising for several months. Goods exports fell 3.5% and services slipped 0.4% for a second consecutive month, Imports slipped 0.7% in February. Excluding petroleum, the nominal trade deficit widened from $68.8 billion to $69.7 billion. The deficit with China increased $3.1 billion to $30.3 billion in February. The deficit with Canada increased $2.2 billion to $4.4 billion in February. The stronger economic performance in the United States compared to parts of the global economy favor imports over exports. This pattern will change slowly over time. The IMF recently upgraded their global GDP forecast to 6.0% in 2021, up from 5.5% in January. Real GDP is projected to be 4.4% in 2022. The IMF did warn that although the current situation from COVID does look brighter, the emergence of COVID variants does pose a sizable downside risk.

Factory orders did take a step back in February, falling 0.8%. Transportation orders fell 1.8%, the first decline since August. Excluding transportation, factory orders still fell 0.9% in February. Core capital goods orders fell 0.9% for the month. Inventories rose 0.8%, compared with a 0.2% gain in January. The inventory-to-sales ratio rose to 1.36. Orders increased 1.0% on a year-on-year basis. Factory orders were held back by declines in demand for machinery, computers, electronic products and appliances and components. Unfiled orders increased 0.8% in February and 9,2% in January. Shipments of core capital goods decreased 1.1%. The report did reflect weakness caused by severe winter weather in February. Manufacturing activity likely bounced back in March. Production is being constrained by labor and component shortages, especially semiconductors. The manufacturing sector is strong, but supply is a problem.

The producer price index increased by 1% in March, fueled by outsize growth in the prices of energy and transportation/warehousing. The core PPI, which excludes the prices of food, energy and trade services, rose 0.6% and was up 3.1% on a year-over-year basis, the largest increase since September 2018. In March, almost 60% of the increase of the final demand index can be traced to a 1.7% advance in the price for goods. Over one-fourth of the March increase in goods can be traced to an 8.8% jump in gasoline prices. The index for services moved up 0.7%. Despite the increase in the PPI, Fed policy is likely to be restrained. The Fed views the recent increase in inflation as transitory and will stay on its current course for quite some time.

Important Data Releases This Week

The March NFIB small business optimism index will be released on Monday, April 12 at 6:00 AM.  The February index stood a relatively restrained 95.8, but weather had a large impact on the economy that month. We project the index will rise to 97 in March on both a rebound from February and stronger economic activity.

The March CPI will be released on Monday, April 12 at 8:30 AM.  Inflation is picking up but some of the push is from energy, which the Fed views as transitory. We look for the CPI to advance 0.6%, or a yearly rate of 2.6%, the highest since August 2018.

The March retail sales report will be released on Thursday, April 15th at 8:30 AM. March was likely a strong month for retailers. Roughly 80% of the stimulus checks reached consumers that month. We project retail sales will jump 5.4% that month.

The March industrial production index will be released on Thursday, April 15 at 9:15 AM.  Industrial production slowed in February as severe winter weather and supply constraints constrained production. While the weather was temporary, supply is still being restrained. We look for total IP to rise 2.6% for the month. Orders continue to come in and backlogs and inventories are low, forces that will feed production in coming months. The supply issue will remain for at least a few more months.

The March housing starts report will be released on Friday, April 16 at 8:30 AM. Housing remains one of the strongest parts of the economy, but weather caused a slowdown for February, with starts coming in at a 1.421 million number. Some cooling in housing is expected as mortgage rates have increased, and labor issues are constraining activity. Still, housing demand will be decent, with starts coming in near 1.5 million for March.

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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.

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