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.
U.S. stocks sold off and the Nasdaq had the worst daily percentage decline in three weeks on Friday as a spike in new coronavirus cases and data showing a stall in U.S. business activity in February fueled investors’ fears about economic growth. The HIS Markit flash manufacturing PMI was at 50.8 in January, a six-month low, while the services PMI came in at 49.4, a 76-month low. China reported a jump in new cases on Friday and South Korea reported 100 new cases while Japan reported more than 80 people testing positive for the coronavirus. The Dow Jones fell 227.57 points on Friday or 0.78% to 28,992.41. The S&P lost 35.48 points and the Nasdaq dropped 174.38 points or 1.79% to 9,576.59.
Last week saw housing starts falling modestly in January but maintaining a high pace. Starts for the last two months were boosted by warm weather. Housing starts fell 3.6% to an annual pace of 1.567 million, following December’s 17.7% gain. Housing permits, less affected by weather rose 9.2% in January, more than offsetting December’s decline. Low mortgage rates are fueling housing activity. Housing will provide a small boost to the economy, but residential investment does only represent 3% of GDP, that’s only a fraction of the total. In other good news, the forward-looking Leading Economic Indicator Index jumped 0.8% to an all-time high and eased some concerns of the dip the previous month.
While trade tensions have retreated in recent weeks, the coronavirus has replaced as a source of uncertainty among businesses and investors. There are now 76,000 cases in China, 208 in Sough Korea, 109 in Japan and 15 in the United States. The eight mentions of the word “coronavirus” in the FMOC minutes suggest the Fed was watching developments closely in late-January. The Fed had concluded that the “distribution of risks to the outlook for economic activity as more favorable” than at the previous meeting. We expect the Fed will remain on hold but may move of the economic damage becomes more pronounced.
Next week we get a look at advanced durable goods orders, personal income and outlays advance trade in goods and GDP. The economy remains solid on the consumer side. The industrial side is facing troubles, some of which are temporary. Between Boeing’s halt of production of the 737 MAX, the effects of the coronavirus and the big jump in auto imports following the mending of the strike by the UAW, real GP growth may come in closer to 1% than the 2% rate we’ve seen recently. However, a rebound in industrial activity should follow in the second half of the year. Some of the headwinds facing production will remain, such as weak trade, the impact of the strong dollar and slow global growth. The economy should rebound back to 2%, but there are still uncertainties to face in 2020, not at least is an election.
The U.S. Economy:
The producer price index for final demand increased a stronger than expected 0.5% in January, following a 0.2% rise in February. The January increase was driven by services, which rose 0.7%. Goods prices increased just 0.1%, following a 0.3% rise in December. Core goods rose 0.3%. On a year ago basis, the final demand PPI was up 2.1% and final demand goods rose 1.9% in January and core goods were up only 0.7%. Since some firming in inflation is already penciled in by the Federal Reserve, the move won’t lead to a change in policy. The Fed will sit tight this year unless economic weakness starts to surface.
Housing starts are continuing to reap the benefits of low mortgage rates and unseasonably warm weather. Starts fell 3.6% to a still decent annual rate of 1.567 million units. January’s decline did little to erase December’s 17.7% gain and leaves starts near the highest levels since 2006. Single-family starts fell 5.9% in January after rising 14.1% in December. The multi-family starts sector rose 0.7% to 557,000 units. Total permits rose 9.2% to an annual pace of 1.551 million. Single-family permits rose 6.4% and the multifamily sector saw a 14.6% rise in January. Warm weather affected starts activity in December and January and the seasonal impact is large in January. Real residential investment only accounts for 35 of GDP, so increased housing only has a subdued effect on GDP. Still, low mortgage rates do mean decent housing activity.
Existing home sales dropped 1.3% to 5.46 million units in January, ceding a part of December’s strong gains. Single-family sales fell 1.2% and condo/coop sales fell 1.6% in January. Two of for Census regions posted gains in January. House price growth remains robust amid a strong housing market. The median house price was $269,600 in January, up 6.95 from a year earlier. The market remains tight. Single-family homes listed for sale totaled 1.25 million, up 3.3% from December, but down 11.3% from January 2019. The inventory-to-sales ratio in January came in at 3.1 months in January, up 0.1 from December, but down 0.7 from a year earlier. Mortgage financing terms will hover near the present low rates in the near term as the Federal Reserve keeps its monetary policy dovish due to modest inflation pressures. Sales should continue an upward trend in 2020.
Important Data Releases This Week
The January new home sales report will be released on Wednesday, February 26 at 10:00 AM. We expect a jump in sales from the 694,000 in December to 720,000 for January.
The January advance durable goods orders report will be released on Thursday, February 27 at 8:30 AM. Orders advanced 2.4% in December on strong orders for civilian aircraft. Core capital goods orders fell 0.8% in December. We expect total orders to fall 1.4% in January and the core sector to be unchanged.
The advance trade in goods report will be released on Friday, February 28 at 8:30 AM. We project the trade deficit to fall from $68.3 billion to $67.9 billion.
The personal income ad outlays report will be released on Friday, February 28 at 8:30 AM. Personal income is projected to increase 0.4% in January, following the 0.2% rise in December. Personal spending will rise 0.3%, the same increase as in December.