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.
Hopes of a trade deal between Washington and Beijing turned world stock prices upwards on Friday, though an escalating wave of global protests from Hong Kong to Chile left some deep scars. Europe’s main bourses followed Asia upwards after White house economic advisor Larry Kudlow said on Thursday that the U.S. and China were close to an agreement. Despite Friday’s rise, emerging market stocks were down 1.7% for the week, while the violent escalation of pro-democracy protests in Hong Kong left the Hang Seng down 4.7% for the week, the worst since 2011 with a 7% plunge. The policy sensitive two-year yield rose to 1.6101% from 1.593% on Thursday after Federal Reserve Chairman Jerome Powell said the risk of the U.S. economy facing a dramatic bust is remote. A Reuters poll of 100 economists showed that while concerns have eased over a U.S. recession, few see an economic rebound and most believe a trade truce is unlikely.
A four-day rally that lifted world stocks to ear record highs stalled on Thursday after a U.S. bill backing Hong Kong’s protesters became law, provoking China’s ire and threatening to derail a trade deal between Washington and Beijing. The MSI World Index was flat, after it approached the record reached in January 2018. However, the index was up almost 3% for November a d is on track for the best month since June. Wall Street’s indexes closed at record highs for a third day on Wednesday before the Thanksgiving holiday, after data showed U.S. economic data showed growth was stronger in the third quarter and consumer spending had increased.
Despite easing for a fourth consecutive month, consumer confidence remains near its cycle high in November, as consumers continue to focus on their own economic interests and discounting trade and political concerns. The Conference Board’s index of consumer confidence fell to 125.5 in November. Fundamentals for the consumer remain healthy and spending remains positive, although moderating. Consumer spending remains on an 2.5% annualized rate over the past three months, down from earlier levels but still positive. In the factory sector, the advance reading of October durable goods orders rose 0.6%, higher than expectations. Encouragingly, core capital goods orders rose 1.2%, the first rise in four months. While the report could suggest a stabilization of the factory sector, the trend has been weak and more positive date would be needed to suggest a turnaround.
The economy has slowed but was revised a little higher in the third quarter. Real GDP increased 2.1% after growing 2% in the second quarter. The first estimate for GDP growth was 1.9%. Consumer spending remained a growth leader, adding 2% to growth, after a 3% contribution in the second quarter. There were upward contributions from inventories, fixed investment in structures and spending on goods and vehicles. There were downward revisions to state and local government spending. Trade is a drag that continues to surprise. The U.S. has been battling China and most of our trading partners for almost two years. The deficit has not fallen as Trump and his administration expected. Tariffs have done considerable damage to the global economy and lifted the value of the dollar. Uncertainty about trade has weakened business investment and hiring has softened. Consumers are keeping the economy going, but spending is showing signs of moderating. If consumers start to soften significantly, recession is likely to follow. The trade deal is important. A successful deal won’t jump start the global and domestic economy in the near term, but it may stop the bleeding. A slow return to normal growth may follow in a few years. No trade deal and the weakness in manufacturing and b8usiness investment may bleed over to the consumer. A recession waits out there eventually but it will come sooner if no deal with China is reached.
Next week the economic calendar will be important. We get a look at the ISM manufacturing index,
The U.S. Economy:
The Chicago Fed National Activity Index fell to -0.71 in October from -0.45 in September, suggesting a further slowdown in economic activity. All four broad categories that make up the index decreased from the previous month and all four made negative contributions. The index’s three-month moving average also fell to -0.31 from -0.21 the previous month, making the ninth consecutive month the index was negative. Production-related indicators contributed -0.55 to the index in October, compounding Setember’s0.36 contraction. The sales, orders and inventories indicators contributed -0.03, compared to September’s -0.04 contribution. Employment indicators contributed -0.10, compared with 0.01 in September. The personal consumption and housing category contributed -0.03, following -0.05 the previous month. The index suggests that economic activity was below average in October.
U.S. inventory build started up in October. Wholesale inventories increased 0.2% in October, following a 0.7% decrease in September. Retailers saw a 0.3% advance during the month and stocks grew 0.6% excluding the auto sector. Durable goods inventories slipped .1% and nondurable goods stocks rose 0.6%. Inventories have been a drag on output growth for two quarters. Inventory turnover remains weak and production is pulling back with the manufacturing sector in recession.
The goods deficit narrowed a second time in October as imports contracted significantly more than exports. The deficit fell to $66.5 billion in October, down from $70.5 billion September. Nominal exports fell 0.7%, after gaining 1.3% in September. Performance was largely negative across export categories. Industrial supplies edged up 1%, after a 0.6% loss in September, but were down 5.8% from a year earlier. Consumer goods exports lost 4% to offset September’s 3.9% gain. Food, feed and beverage exports lost 3%. Nominal goods imports decreased 2.4%, following a 2.1% loss in September and were down 6.9% y/y. Auto imports dropped 5.9% to add to September’s 3.4% decline. Industrial supplies dropped a more modest 1.9%. The report shows that trade volumes are weak, hurt by a weaker global economy and trade tensions. Both exports and imports are showing signs of strain and are down substantially from a year earlier. If a trade deal with China is not reached by Dec. 15, tariffs will hit a variety of consumer goods.
U.S. manufacturing is showing some signs of stabilizing as the step up on the durable goods report is a step in the right direction. Durable goods orders increased 0.6% in October, following a revised 1.4% decline in September. Nondefense capital goods orders increased 0.6%, after a 0.4% decline the month preceding. Core capital goods orders rose 1.2%, the first rise in four months Transportation orders increased 0.7% in October, reversing some of the 3.2% decline in September. The sharp September decrease was tied to the UAW strike. Excluding transportation orders, durable goods orders were up 0.6% in October. The increase in orders is good news, but it needs to be sustained to have real meaning. Production will likely increase in November and December, because of the strike being settled. Loner-term, manufacturing is still struggling but a potential bottom is encouraging.
Personal income was unchanged in October, following a 0.3% rise in September. Personal spending also disappointed, only rising 0.1%, after a 0.2% rise the previous two months. The savings rate fell to 7.8% from 8.1% in September as income growth was weak. Consumer spending is positive, but lagging expectations and growth of recent months. It does suggest a moderating trend for consumption and could reflect a more noted slow down in GDP growth than the 2% trend. Inflation remains modest, with the PCE deflator rising 0.2% n October, after remaining unchanged the previous two months. Inflation would have to accelerate at a strong pace in order to change present Fed policy.
Important Data Releases This Week
September retail sales will be released on Wednesday, October 16 at 8:30 AM EDT. After posting a soft August except for auto sales, we are looking for a 0.3% in sales for September. Sales excluding autos and gasoline are also projected to rise 0.3%.
The October ISM manufacturing index will be released on Monday, December 2 at 10:00 AM. The forecast for November ISM is 49.4 is 49.4, up from October’s 48.3 reading.
November U.S. motor vehicle sales will be released on Tuesday, December 3 at 2:00 PM. We project that sales will equal 16.7 million for November, up from the 16.5 million in October.
The October ISM non-manufacturing index will be released on Wednesday, December 4 at 10:00 AM. The forecast for November ISM is 49.4 is 49.4, up from October’s 48.3 reading.
The October trade deficit will be released on Thursday, December 5 at 8:30 AM. We project the deficit will be largely unchanged at $50.0 billion, down from September’s $52.5 billion.
October factory orders will be released on Thursday, December 5 at 10:00 AM. The advance durable goods report showed a 0.6% advance, partly offsetting the 1.4% decline in September. Core capital goods rose 0.8%, the first increase in four months. We project total factory orders will rise 0.4% and core orders will rise 0.5%.
November employment data will be released on Friday, December 6 at 8:30 AM. Employment growth has slowed and only 128,000 jobs were created. We project an addition of 135,000 for November. The unemployment rate will be unchanged at 3.6%.