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.
Financial markets were on edge on Friday’s hopes that a new round of U.S. fiscal stimulus met fears that social restrictions to tackle the coronavirus pandemic would undermine global growth, especially in Europe where a new wave of infections is undermining confidence. In the near-term, there is the negative threats of the pandemic, the U.S. election, Brexit and at the same time the positive realization some of these risks can be resolved in a matter of weeks, or months. The pan-European STOXX 600 rose 0.8% after an hour after the open. The index had fallen more than 2% on Thursday new social restrictions in Europe, including a curfew in major French cities and tighter restrictions in London, spooked investors. Oil prices continued to slide as concern that resurgent COVID-19 cases in Europe and the United States would curtail demand.
Wall Street indexes closed mostly higher Friday, with gains attributed to the better-than-expected retail sales report, along with an improvement in consumer sentiment, reliving some fears about a slow economic recovery. Wall Street sentiment was also supported by news that a Pfizer vaccine might be submitted for approval by next month, even as the spread of the viral outbreak has forced restrictions on business and travel in major European cities. The Dow Jones Industrial Average added 112.11 points, or 0.4% to close at 28,606.31, the S&P added 0.47 points to reach 3,483.81 and the Nasdaq lost 42.32 points to settle in at 11,671.56. For the week, the Dow added a 0.1% gain, the S&P rose 0.2% and the Nasdaq Composite advanced 0.8%. The stock market snapped a three-day losing streak when the report on retail sales suggested consumer spending is more resilient than expected, in the midst of the worst pandemic in more than a century.
Consumer prices and retail sales rose in September as activity continued to pick up, but a rise in initial claims for state unemployment benefits point to further churn in the labor markets. Consumer prices rose for a fourth consecutive month in September. The CPI rose 0.2% in September, which was followed by a 0.4% rise in August. Some categories are still feeling the effects of the pandemic. Grocery prices fell for a third consecutive month after runups when most businesses were shut down and people were at home. Restaurant prices surged 0.6%, the most in 12 years as demand picked up as the economy re-opened. The PPI for final demand climbed 0.4%, the fifth consecutive month of increases. Core CPI rose 0.2%, suggesting that fears of disinflation are receding, but overall inflation will continue to be restrained. This will keep the Fed quiet for likely a couple of years before moving.
Retail sales rose a solid 1.9% in September, suggesting some continued momentum going into the fall. The underlying details suggest the consumer continues to spend a considerable amount on goods. As this trend is expected to moderate, overall spending will pick up as the service sector awakes. A renewed pickup of COVID-19 cases in the Midwest, has raised concerns about continued recovery. We do not think this will lead to lockdowns, but there could be localized setbacks to activity. Industrial production disappointed in September, falling 0.6%. This was the first decrease in the last five months. Utilities led the weakness falling 5.6%. Mining advanced 1.7% as oil and gas firms came back on-line after a August of hurricanes. Manufacturing fell 0.3%, compared to a 1.3% advance in August. Auto output dropped for a second consecutive month and manufacturing excluding the auto sector, was unchanged. The big gains in industrial output are likely over. Activity should stay positive, but modest going forward.
Initial claims for unemployment insurance benefits increased by 53,000 to 898,000 in the week ending October 10. The increase may be misleading because California stopped taking claims for processing for likely two weeks. New filings for Pandemic Unemployment Assistance continue to bounce around as they dropped from 463,897 to 372,891 in the week that ended Oct.3. Meantime, continuing claims for unemployment insurance benefits continue to signal improvement, falling from by 1.165 million to 10.018 million in the week that ended October 3. The labor market continues to show improvement but is likely to moderate until a vaccine is found and service industries, such as restaurants can fully recover. Near-term risks are still large as the virus rages and further shutdowns are likely as the weather turns cool. The labor market will not totally recover until 2022-23.
Next week, we get a look at housing starts and permits, existing home sales and the leading economic indicators.
The U.S. Economy:
Business inventories reversed their decline in August by advancing 0.3% after a 0.1% increase in July. Among categories, manufacturing held steady and retail and wholesale advanced 0.4%. Business sales continued to recover in August. The improvement was broad based, as wholesale sales rose 1.4%, manufacturing was up 0.3% and retail sales gained 0.2%. The business-to-sales ratio fell from 1.32 to 1.31. For reference, the ratio was 1.39 in August 2019. The cycle low was 1.25 and the recession high was 1.49. The recovery in retail sales has allowed the I.S. ratio to fall to levels suggesting more production may be needed and a higher level of inventories to meet demand. Sales in most measured categories are above year ago levels despite a high unemployment rate. A lot of the spending was driven by stimulus and without additional funds, spending will slow. For the short-term, production appears ready to advance further.
Retail sales came in above expectations in September, rising 1.9% after a 0.6% advance in August. Sales were up an impressive 2.4% above year earlier levels. Auto sales and parts sales increased 3.6%, Excluding autos and gas sales advanced 1.5%. Apparel sales rose 11% and department sales rose 9%. Electronic and appliance stores were the only monthly loser. The COVID-19 effect continues to show up in spending. Year-ago sales are being led by non-store retailers, up nearly 24%, with double digit gains posted by building supply shops, sporting goods stores, vehicle dealers and grocery stores. Apparel stores, restaurants and gasoline stations posted double-digit declines. Retail sales have made a stunning recovery from the recession aggregate, sales are above where they started the year and year-ago growth actually exceeds early-2020 rates, despite the job losses and plunge in confidence. However, job and income growth are slowing and the stimulus that supported much of the spending is fading. The path of the virus, timing of a vaccine and the election has made the future highly uncertain.
Industrial production fell 0.6% in September, the first decrease in five months. Utility output fell 5.6%. Manufacturing fell 0.3%, led by a 4.0% decline in the auto sector. Excluding the auto sector, manufacturing was unchanged. Durable goods output fell 0.5%, while nondurable goods production was unchanged. Mining output rebounded 1.7% after falling 2.4% in August because of hurricane-related shutdowns. Business equipment production fell 1.2%, the first fall since April. Consumer goods production also fell, falling 1.6%. Nonindustrial supplies output dropped 0.7%. Within nonindustrial supplies, construction production advanced 0.1% in September. Factory conditions will be tested, as the pandemic is still raging. Manufacturing was weak, dropping for the first time since April. While auto production has bounced back, the recent big gains are not sustainable. Output declined for a second month in September. The global economy is recovering but slowly and a second wave of infections is hitting Europe. Future gains are likely to be positive but very modest for the industrial sector.
Important Data Releases This Week
Week of October 19-23
The September housing starts report will be released on Tuesday, October 20 at 8:30 AM. Housing has been on a roll, with starts coming at a 1.416 million pace in August. Permits have been positive, suggests a modest improvement in September to 1.450 million units for September.
The September existing home sales report will be released on Thursday, October 22 at 10:00 AM. Existing home sales reached 6.0 million in August. Sales are being pushed by low interest rates, low inventories and rising affordability. We see sales hitting 6.25 million in September.
The September Leading Economic Indicator index report will be released on Thursday, October 22 at 10:00 AM. The leading indicator index rose 1.2% in August. The indicator will rise a moderate 0.8% in September as the pull back in share prices and a slightly flatter yield curve will slow the index. The coincident index also likely will post a more modest increase, That indicator has done a good job of reporting the loss of momentum in the broader economy, having increased 3.9% in June, 1.2% in July and 9.6% in August.
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