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.
World stocks pushed on from one-month highs, with Asian stocks closing in on a-two-and-a-half month highs, as expectations grew of a Democratic victory in U.S. elections next month, reviving hopes for more U.S. stimulus. MSCI’s broadest index of Asian-Pacific shares outside of Japan, rose 0.3% on Frida, inching closer to its Aug. 30 peak, which was the highest level since March 2018. MSCI’s world equity index, which tracks shares in 49 countries, was up 0.1% at a more than one-month high. The pan European STOXX 600, rose 0.3% on Friday, set for a second week of gains. A widening lead for Democratic presidential candidate Joe Biden and the possibility his party will win both the Senate and White House in the Nov.3 vote has raised the prospect of a big economic stimulus package. The possibility of stimulus has countered investor wariness about a Democratic pledge to hike corporate tax rates.
U.S. stocks rose on Friday and the S&P 500 and Nasdaq registered their biggest percentage gains since July as optimism over more fiscal aid grew. Talks were expected to continue on the COVID-19 stimulus package, even though U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin failed on Friday to reach an agreement. The Dow Jones Industrial Average rose 161.39 points, or 0.57% to 28,586.9, the S&P gained 30.31 points, or 0.88% and the Nasdaq added 158.96 points, or 1.39% to 11,579.94 points. For the week, the Dow rose 3.3%, its biggest gain since August, the S&P was up 3.8% and the Nasdaq climbed 4.6%, its biggest gain since July. The market seemed to react favorably to Trump’s sudden turnaround of a support package. Many investors think that is pure politics, but others believe the country needs some economic support. On Friday, Senate Majority Leader Mitch McConnell said that it’s unlikely that a stimulus package will be passed in the next three weeks. Also, it is not clear there is enough support in the Senate for stimulus of $1.8 trillion or more.
Initial claims for unemployment insurance benefits fell by 9,000 to 840,000 in the week ending October 3, New filings the week before were revised to have been 849,000 (previously 837,000). New filings for Pandemic Unemployment Assistance continue to bounce around as they dropped by 44,270 to 464,437 in the week that ended Oct.3. Meantime, continuing claims for unemployment insurance benefits continue to signal improvement, falling from 11.979 million to 10.976 million in the week that ended September 26. The labor market continues to show improvement in the unemployment rate, but it is concerning since the labor participation rate is also declining. The labor participation rate dropped 3.2 percentage points when the recession began and remains down 2 percentage points from its pre-COVID 19 level. It will likely take years to fully repair the damage caused by the virus.
It was a slow week for economic news. The persistence of jobless claims above the 800,000 per week suggests the improvement in the labor market continues to lose momentum. Many people in the restaurant, travel and entertainment industries may have to wait until there is a vaccine to find work. The ISM non-manufacturing index beat expectations, rising 0.9 points to 57.8. The advance was led by the important new orders component and employment climbed past the 50 mark. Federal Reserve Chair Jerome Powell re-iterated the importance of additional fiscal stimulus at his virtual address to the National Association of Business Economists last week. He said the effect of COVID-19 on the national economy was similar to a natural disaster and is being followed by a similar rebound. He cautioned that a renewed weakening in the economy could unleash the same self-reinforcing destabilizing influences that a more typical of a recession and would require even more fiscal and monetary stimulus. Risks, he said, were still solidly stacked to the downside.
The stimulus negotiations, which appeared dead a few days ago, now appear to be on again. The chance of deal getting done before the election is a toss-up. Financial markets are clearly anticipating that a deal will get done either before or after the election. Bond yields have increased in anticipation a deal will get done and poll results suggest a “Blue Wave” in the election and that a larger stimulus package will be passed if the Democrats win the presidency and take control of the Senate.
Next week, we get a look at the small business optimism index, inflation, retail sales, industrial production and business inventories.
The U.S. Economy:
The nominal trade deficit widened again, rising from $63.4 billion in July to $67.1 billion in August. Nominal exports rose 2.2% in August, while imports were up 3.2%. The trade deficit was the largest since 2006. There are several reasons for the significant widening of the deficit over the last few months, including a strong dollar and the gap between U.S. and global GDP growth. Goods exports increased 3%, while service exports edged up 0.3%. Goods imports increased 3.3% in August, while service imports gained 2.4%. In August, consumer imports jumped, in part because retailers are stocking ahead of the holiday shopping season. The services surplus narrowed in August, largely because of the decline in travel exports. Travel exports have fallen for six consecutive months and are down more than 75% on a year ago basis. Trade volumes are only slowly gaining ground and remain well below year earlier levels.
The September ISM non-manufacturing index rose from 56.9 in August to 57.3 in September. This was the fourth consecutive month the index has been above the 60 mark. The business activity index rose from 62.4 to 63. 16 industries reported growth in business activity. New orders had a decent gain, rising from 56.8 to 61.5. The index is still below its recent peak of 67.7. 14 industries reported growth in new orders. The employment index increased from 47.9 to 51.8. The index is back above the 50 mark for the first time since the pandemic began. Nine industries reported growth in employment. The supplier deliveries index fell from 60.5 to 54.9. According to respondents, “suppliers not ready for volumes of new business” and “slower trucking, reduced manufacturing capabilities, and rail car shortages.” The service industry is advancing and counter some other economic data that suggests activity is moderating. However, the job market is slowing and fiscal stimulus is fading. Future advances will be more modest.
Wholesale inventories advanced 0.4 in August, following three months of declines. Durable goods inventories grew 0.6%, while nondurable stocks were unchanged. Wholesale sales have nearly recovered, growing 4.8% in July and 1.4% in August. The I/S ratio fell from 1.32 to 1.31, matching the rate seen in February. Although the rise in stocks was encouraging, the slower pace of sales suggests the economy is moderating. Some fiscal stimulus may be needed to fuel the economy to a self-sustaining state.
Important Data Releases This Week
The September small business optimism index will be released on Tuesday, October 13 at 6:30 AM. The small business optimism index increased in August after losing some ground in July. The August gain was broad based with seven of its subcomponents advancing. Hiring plans jumped to near its pre-pandemic level. We look for the index to advance from 100.2 to 100.9.
The September CPI report will be released on Tuesday, October 13 at 8:30 AM. The CPI index has swung quite a bit the last few months. The index declined for three moths during the early part of the pandemic, sparking fears of deflation. More recently, inflation has awakened as industrial activity re-opened. Last month, we saw a 0.4% advance but that will not be sustained. The index is projected to rise 0.2% in September.
The September PPI report will be released on Wednesday, October 14 at 8:30 AM. The PPI report increased 0.3% in August. The index should increase 0.2% in September on lower energy prices.
The September retail sales report will be released on Friday, October 16 at 8:30 AM. Retail sales were strong last month rising 0.6%. However, the explosion from the re-opening of businesses is slowing. Vehicle sales were strong in September. We see sales rising 0.4% for the month.
The September industrial production index will be released on Friday, October 16 at 9:15 AM. Industrial production rose 0.6% in August, held back by utility and mining output. Manufacturing was solid. The trend is slowing as the initial re-opening phase is ending. We look for total output to advance 0.4% for September.
The August business inventory report will be released on Friday, October 16 at 10:00 AM. Wholesale stocks grew 0.4% in August, ending three months of declines. Business stocks only rose 0.1% in August but a 0.2% advance is projected for August.
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