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.
The dollar recovered overnight losses and European stocks rose on Friday, even as coronavirus cases increased in some countries, as markets reassessed expectations for an economic meeting before a key European Union meeting. The rise in coronavirus over the past two weeks has increased the level of uncertainty as the effect it might have on the recovery and whether it will be V-shaped, as markets seems to be currently pricing in or a much longer U-shaped type of rebound. The MSCI world index edged up 0.1% on Friday and the pan-European STOXX 600 increased about half a percent. European leaders met via teleconferencing on Friday to discuss proposals for a 750 billion euro-wide coronavirus recovery fund.
The S&P ended lower on Friday after an up and down session as investors weighed spiking cases of COVID-19 and Apple Inc.’s announcement of fresh store closures against anticipated stimulus and continued economic recovery. The Dow Jones Industrial Average fell 208.04 points, or 0.8% to 25,871.46, the S&P lost 17.53 points, or 0.56% ad the Nasdaq Composite added 3.07 points, or 0.03% to 9,946.12. S till, for the week, the Dow and S&P posted gains. The &P 500 and the Dow are 8.5% and 12.5% shy of their all-time highs reached in February.
Retail sales kicked off the week with a bang, rising 17.7% month-over-month in May. The increase was much larger than expectations. With May’s gain, sales are only down 6% year-over-year and just 8% from February. Sales are clearly tied with the reopening of stores. Furniture store sales increased 90% month-over-month and clothing stores sales were up 188.8%. Despite these eye-popping numbers, sales are clearly weak in some sectors. Furniture sales are still down 23.2% and clothing stores 63.3% compared to a year ago. Still, the growth in sales is a good sign for the second half of 2020.
Factory data was not as encouraging. Industrial production increased 1.4% in May, below expectations. On a year-ago basis, the decline in industrial production is more than double the decline in retail sales. Re-opening auto plats led to a big jump in auto and parts production (+120.8%). Still, the level of output is less than a quarter of its peak. The weakness in production seems to buck the trend seen in other major economies. In China, industrial production was up 4.4% year-over-year, but retail sales were down 2.8% over the same period. Housing starts data was weak in May barely rising above April’s level. However, permit data was more positive, suggesting that housing may still see a decent recovery.
Jobless claims remain elevated at over 1.5 million a week. Initial claims for unemployment insurance benefits declined by a meager 58,000 to 1.508 million in the week ending June 13. Filings for pandemic Unemployment Assistance increased from 694,463 to 760,526 in the week ending June13 Continuing claims fell by 1.092 million to 20.815 million. The insured unemployment rate was unchanged at 14.1%. Jobless claims are declining after peaking in late March at early 7 million weekly filings. Initial claims fell sharply in April and May, but weekly declines are getting smaller and smaller. The fact that millions of Americans remain unemployed and that reopening businesses across the country is not like turning on a light switch. Employers are only gradually hiring back some workers. Businesses got more time to spend their PPP funds with the passage of the PPP Flexibility Act, which gave businesses more time to hire back workers. The road back for the labor markets is looking longer than anticipated.
Next week, we get a look at new and existing home sales, durable goods orders and personal come and outlays.
The U.S. Economy:
The inventory build stumbled further in April. Business inventories contracted by 1.3% for the month. Among the categories, manufacturing fell 0.4% and retail contracted 3.7%. Wholesale stocks increased 0.3%. Business sales fell 14.4% in April and the decline was broad based. Wholesale sales fell 16.9%, manufacturing dropped 13.5% and retail sales declined 12.7%. The inventory-to-sales ratio rose to 1.67. For reference, the ratio in April 2019 was 1.39. The cycle low was 1.25 and the recession high was 1.49. The coronavirus has severely disrupted supply chains. The global lockdowns have resulted in severe demand destruction. Sales reached a low point in April ad rebounded in May but remain well below year earlier levels. The road back will likely take a long period of time.
Industrial production rose 1.4% in May after contracting 12.5% in April and 4.6% in March. Total IP is still down more than 15% from February’s level. Manufacturing increased 3.8% ion May, but that followed a 15.5% decline in April and a 5.3% drop in March. Motor vehicle and parts production jumped 120.8% in May, offsetting the 76.5% decline in April and the 30% drop in March. Excluding motor vehicles and parts, manufacturing rose 2.0% in May but that did not outrun the 11.9% drop in April and the 3.3% decline in March. Utility output fell 2.3% in May after a 0.1% gain in April. Within utilities, electrical output fell 1.1% in May and natural gas output dropped 8.1%. Mining production fell 6.8% in May after declining 6.1% in April. Mining output has declined for four consecutive months. Lower global oil prices have led to a sharp drop in the number of rotary rigs operating in the U.S. The index for oil and gas wells is 63% below a year ago. The outlook for the industrial sector is not good. Certain segments like food processing ad tech will fare better than others but there will be no V-shaped recovery. The road back will be long and likely rough.
Retail sales soared beyond expectations in May but still remain low by pre-COVID 19 standards. Retail sales jumped 17.7% in May after falling 14.7% in April and 8.2% in March. Sales remained still down 6.1% from a year earlier in May. Sales excluding autos and gas increased 12.4% in May but sales in that category were down 14.4% in April. Motor vehicles and parts sales soared 44.1% in May, offsetting the 12.3% drop in April and the 25.9% decline in March. Furniture and home furnishing items saw sales increase 89.7% in May, following declines of 48.4% in April and a 22.1% decline in March. Non-store sales have increased 9.0% in May and 9.5% in April. The May sales report shows the bottom was reached in April but sales are much weaker than a year ago. The good news is that the re-openings are continuing in June. The sad fa t is millions of people are unemployed and spending needs to be supported further when such fiscal help ends at the end of July or the economy may stumble back into recession.
U.S. housing starts edged higher n May, rising from 934,000 to 974,000, short of expectations. Single-family starts increased 0.1% to 675,000 annualized units. The gain did little to erase the declines seen in the previous two months. Multi-family starts were up 15% to 299,000 annualized units. Leading indicators were a little more upbeat as total permits rose 14.4% to 1.220 million units. Single family and multi0family permits were up 11.9% and 18.8%, respectively. Housing starts did disappoint in May but that hasn’t ruled out a v-shaped recovery, as permits and mortgage applications have been more promising. The NAHB index jumped in June, pointing to additional advances for that month. The recession is likely over but it was one of the deepest but shortest downturns in history. The challenge will be to see if the recovery is self-sustaining, with enough employment growth to keep the expansion alive.
Important Data Releases This Week
May existing home sales will be released Monday, June 22 at 8:30 AM. Housing demand has bounced back from its coronavirus bump, with the mortgage applications up 21% year-over-year. Job losses have mainly hit the rental market, leaving homebuyers relatively untouched for now. Existing home sales were weaker than new in May but should make a modest decline from 4.33 million to 4.15 million.
May new home sales will be released Tuesday, June 21 at 8:30 AM. New home sales should advance modestly in May, rising from 623,000 to 630,000.
Durable goods orders for May will be released on Thursday, June 25 at 8:30 AM. Durable goods orders fell at17.7% in April and core orders were down 6.1%. We expect a modest gain in total orders for May, up 3% and core orders will rise 0.2%.
May personal income and outlays will be released Friday, June 26 at 8:30 AM. Personal income increased 10.5% in April as the stimulus checks were mailed. That won’t show up in May’s numbers, with incomes projected to fall 6.0%. Spending fell 13.6% in April as stores closed. Spending should pick up 8.7% for May.
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