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.
Global shares slid further from five-month peaks on Friday as a bounce back in European business activity did little to ease concerns surrounding Sino-U.S. tensions. Investors took little comfort from PMI data that showed euro-zone business activity bounced back to growth as more parts of the economy that were locked down to stop the spread of the virus re-opened. British business had the fastest growth in five years. MSCI’s broadest index of Asia-Pacific shares outside of Japan lost 1.9%. The euro-zone manufacturing PMI rose from 47.4 in June to 51.1 in July and the services PMI rose from 48.3 to 55.1. The composite index rose to 54.8, a 25-month high.
Wall Street retreated on Friday, heading for the weekend with a broad selloff due to weak earnings, surging coronavirus cases and geopolitical uncertainties. The Dow Jones Industrial Average fell 182.44 points, or 0.68% to 26,469.89, the S&P lost 20.03 points, or 0.62% to 3,215.63 and the Nasdaq Composite dropped 98.24 points, or 0.94% to 10,363.18. Each index posted a weekly loss, with the Dow and S&P snapping a three-week winning streak. Nasdaq had the weakest week of the last four. The retreat followed a rally that brought the S&P 500 to nearly 5% below its record high reached in February. The bellwether index is near its break-even point or the year and the Nasdaq is up 15% year-to-date. More than 1,000 Americans died from COVI-19 on Thursday, the third straight day of that milestone and total cases surged past 4 million.
The pausing and reversal of multiple state re-opening plans is keeping unemployment high. Jobless claims numbered 1.316 million in the week ending July 18, up by 109,000 from the previous week. Non-seasonally numbers decline by 141,816 to 1.371 million. Filings for Pandemic Assistance increased by 974,999 from 955,272 the week before. Continuing claims fell by 1.107 million to 16.197 million in the week ending July 11. The insured unemployment rate fell from 11.8% to 11.1%. After weeks of steady declines, jobless claims are not encouraging. The only good news is that rehiring is outpacing layoffs but that trend my not hold as more restrictions are added. The fact that initial claims are edging higher suggest the resurgence of the virus may be taking a toll on the labor market recovery.
It was a light week for economic data. Record low mortgage rates have spurred a rebound in the housing market. Existing home sales jumped 20.7% and new home sales rose 13.8%. More positive news may be following as weekly mortgage applications were up nearly 20.7% for the year ending July 17 and rates have tested record lows in recent weeks. Housing is a bright spot, but the broader economic recovery may be starting to lose steam. The resurgence of COVID-19 cases in many parts of the country have led to tighter restriction and businesses and consumers appear to be getting more cautious. The leading Economic Index (LEI) rose 2.0% in June, slightly less than the 3.2% increase in May, when many parts of the country started to re-open. In short, the economic recovery continues, but the pace is improvement appears to be slowing.
Next week, we get a look at personal income and outlays, durable goods orders and second quarter GDP.
The U.S. Economy:
The June reading for the Chicago Fed’s National Activity Index showed another sharp increase from April’s historic low. The index rose to 4.11, its highest reading on record dating back to March 1967. Three out of fur broad categories made a positive contribution to the index. The three-month moving average was -3.49, up from -6.36 in May. Production related indicators contributed 2.22 to the index, up from May’s 0.84 reading. The sales, orders and inventories contributed -0.24, compared with May’s 0.04 reading. This was in response to firms drawing down existing inventories rather than placing new orders. Employment related indicators added 1.74, similar to May’s 1.73 reading. The personal consumption and housing category contributed 0.4, down from 0.89 the previous month. Like the economy, the index has seen wild swings the last few months and will likely settle down to smaller moves. With rising infections and more restrictions, big gains in employment and spending will be curtailed. The manufacturing sector is positive but faces a long road back to pre-COVID-19 levels.
Existing home sales spiked 20.7% in June sharply rebounding from the heavy losses in both April and May and settled near the highest level reached in March. The end of shutdowns in many states lifted potential house buyer spirits and low interest rates are fueling activity. Single-family and condo/coop sales Increased 19.9% and 29.4%, respectively. Moreover, sales increased across the census regions, with the West and South registering the most sizable gains. Annualized seasonal adjusted existing home sales clocked in at a 4.72 million, pace but was still down 11.3% from a year earlier. Future activity may be mixed. Mortgage applications and pending home sales are up strongly, but the threat of potential shutdowns could dent sales.
Important Data Releases This Week
The June durable goods orders report will be released on Monday, July 27 at 8:30 AM. Orders rose by 15.7% in May and core capital goods orders were up 1.6%. We expect another strong rebound got June with orders rising 7.0%.
The June advance trade in goods report will be released on Wednesday, July 29 at 8:30 AM. Trade volumes have been pounded by the coronavirus. Exports are off by a third and imports by a quarter from a year earlier, keeping the goods deficit high at $74.3 billion. Only a slow Improvement is expected as global economies re-open, with the deficit coming in at $70 billion.
The first estimate of second quarter GDP report will be released on Thursday, July 30 at 8:30. The second quarter us terrible with output projected to fall 35% annualized. The third quarter will be better, with a robust rebound. There are risks as new coronavirus cases are spiking and many states have started new restrictions. We do not think there will be a total lockdown will follow but high frequency data suggests the economy is slowing.
The June personal income and outlays report will be released on Friday, July 31 at 8:30 AM. Personal spending likely increased 6.2% in June, in line with retail sales data. Personal income likely fell 1.3% as job income rose but government payouts fell sharply.
FTR is the leader in economic analysis and forecasting for the commercial freight and transportation equipment markets. For more information: Click here