U.S. Initial Claims for Unemployment Insurance Signaling Volatility

By | March 8, 2021

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.


It was a volatile Friday for investors as another push higher in bond borrowing costs and the dollar sank stocks. Oil prices jumped after OPEC and its allies opted against increasing supply by a meaningful amount for the time being. European shares started 0.7% lower and Asia dropped and MSCI’s all country index, was on its longest losing streak in six months. The markets were disappointed after Federal Reserve Chairman Jerome Powell had shown little alarm about the rise in yields. Real yields rose 13 bps from their intra-day lows. Yield curves resumed their steepening. The gap between two-year and 10-year yields was 8 bps wider at 142 bps, the widest since November 2015. Even though Powell made it clear the Fed was not close to changing its ultra-loose monetary policy anytime soon, analysts are worries that rising Treasury yields could mean higher borrowing costs and limit the still fragile U.S. recovery.

Wall Street and a gauge of global equity markets rose on Friday as investors cheered signs of economic strength in a report that showed faster than expected U.S. employment growth. The data initially stoked inflation concerns. The Dow Jones Industrial Average rose 572.16 points, or 1.8% to 31,496.3, the S&P gained .73.47 points, or1.95% to 3,841.94 and the Nasdaq Composite added 196.68 points, or 1.55% to 12,920.15. MSCI’s global gauge gained 0.63%. The U.S. economy showed hiring picking up momentum in restaurants, putting the labor market on firmer footing. Treasury yields pulled back from session highs as buyers stepped in after the benchmark 10-year note yield hit its highest in over a year following the payrolls report. The market remains volatile on Thursday when Federal Reserve Chairman Jerome Powell showed little alarm about a rise in bond yields. The Minneapolis Federal Reserve Bank President Neel Kashkari noted, “We are not seeing much movement in real yields but rather an increase in what bond investors, are demanding.”

Most of last week’s economic data came in at or above expectations, adding to the growing anxiety about how the Fed will unwind its extraordinary stimulus it put in place. The ISM manufacturing survey rose 2.1 points to 60.8, with new orders umping 3.7 points to 64.8 and the prices paid index spiked to 86, the highest since 2008. The ISM services index came in below expectations, falling 3.4 points to a still sound 55.3. Both new orders and employment declined during the month, while order backlogs strengthened and the number of firms reporting higher prices for inputs jumped 7.6 points to 71.8.

Nonfarm employment rose by 379,000 jobs in February. Private payrolls rose by an even larger 465,000. The weather affected construction, which fell by 61,000. Service sector employment jumped by 513,000, with leisure/hospitality accounting for well over half that total. California and New York, states that were locked down more than most finally started to reopen. State and local government employment fell by 83,000, likely reflecting the still closed schools and universities. The unemployment rate fell by 0.1% to 6.2%, better than expected.

U.S. initial claims for unemployment insurance are signaling volatility again. U.S. initial claims for unemployment insurance benefits increased from a revised 841,000 to 730,000 in the week ending February 20. Continuing claims declined from 4.52 million to 4.419 million in the week ending February 13. Those claiming Pandemic Unemployment Assistance decreased by nearly 60,000 in the week ending February 20 to 451,402 in the week ending February 20. Claims remain elevated, back well above a million where they have been since the pandemic began.

Next week we get a look at the NFIB small business index, wholesale inventories and the CPI reports.

Latest Data

The U.S. Economy:

Construction spending surprised on the upside, rising 1.7% in January. The increase came largely from the residential sector. Single-family construction spending increased 3% in January and was 24.2% higher than its year ago level. Spending on multi-family structures increased 0.7% for the month. Nonresidential spending did increase 0.4% in January but was still down 10.1% year-over-year. Public construction increased 1.7% in the first month of the year, up 2.9% from a year earlier. Total construction was up 5.8% from a year earlier. Low interest rates will continue to fuel single-family construction. The multi-family sector has been mainly on a flat trend. Nonresidential spending will remain weak but start to improve as the pandemic fades. Weaknesses in lodging and amusement and recreation will slowly get better as time passes. Retail faces a long-uphill climb as non-store consumption continues to make inroads. The public sector is likely to see modest advances in coming months.

The ISM manufacturing index rose from 58.7 in January to 60.8 in February. Details improved in February. The production index increased by 2.5 percentage points to 63.2, with 14 industries reporting stronger production. The new orders index increased by 3.7 percentage points to 64.8% 13 out of 18 industries reported new orders and five out of the six largest industries reported strong increases in new orders. Employment rose 1.8 percentage points to 52.6, with 11 industries reporting higher employment. Supplier deliveries rose by 3.8 percentage points to 72. Of 18 industries, 16 reported slower deliveries during the month. Inventories fell by 1.1 percentage points to 49.7, with six industries reporting higher inventories. The price index rose from 82.1 to 86, the highest since July 2008 and all 18 industries reported higher prices. Backlogs increased by 4.3 percentage points to 64, with 14 out of 18 industries reporting higher backlogs. New export orders fell increased from 54.9 to 57.2 and imports fell from 56.8 to 56.1.

Some of the statements from industry executives are illuminating. A respondent from the chemical business said that supply chains are deleted and inventories up and down the supply chain are empty. The deep freeze along the Gulf Coast will extend the duration of shortages. A respondent in fabricated metals noted that overall capabilities are full across the board and noted continued lead times for both raw materials and finished goods. A respondent from machinery noted that prices are going up and lead times are getting longer. . Labor shortages were noted by a respondent in plastics and rubber products. A executive from electrical equipment and components said, “Things are out of control. Everything is a mess and we are seeing widespread shortages.” A wood products executive noted that prices are rising so rapidly, many are wondering if the situation is sustainable. Shortages have the industry concerned about going forward, or at least deep into the second quarter. These statements indicate a robust recovery that may be curtailed by lack of labor and input components.

U.S. vehicle sales equaled a 15.7 million seasonally adjusted annualized pace in February. Total sales were down 5.7% from January and down 6.6% from a year earlier. Light truck sales decreased by 5.7% from January and were down 1.9% y/y. Car sales fell 8.1% and were down 20.4% from a year earlier. Weather likely had a role in the weaker February sales pace as much of the U.S. was bracketed by storms. January and February are normally the weakest selling months of the year. The outlook is still decent for the vehicle market as the economy and employment will make gains as the pandemic fades. Employment growth has slowed but income gains are still decent, excluding the stimulus checks that not likely to repeat after the current one is passed. Consumer still like their trucks, but car sales have lost market share.

The ISM services PMI came in at 55.3% in February, down 3.4 percentage points from January. The business activity index fell 4.4 percentage points to 59.9, with 14 industries reporting an increase in activity for the month. New orders fell 9.9 points to 51.9, with 11 industries reporting an increase in new orders. The employment index fell by 2.5 percentage points to 52.7%, still indicating growth. The supplier deliveries index increased by 3 percentage points to 60.8, indicating slowing deliveries. The price index rose by 7.6 points to 71.8, with 16 industries reporting higher prices. Respondents reported higher commodity prices that are leading to price increases for industry executives. The outlook is improving as vaccinations are continuing and restrictions are being relaxed.

Factory orders increased 2.6% in January, mainly powered forward by the transportation sector. Orders had increased 1.6% in December. Transportation orders increased 7.7% in January. Durable goods orders increased 3.4% in January while nondurable goods rose 1.9%. Shipments increased 1.9% following a 2.1% increase in December. Machinery led the increase in shipments, rising 3.0%. Petroleum and coal shipments rose 7.3% in January. Total unfilled orders rose 0.1%. Inventories fell 0.3%, down two consecutive months. The inventory-to-shipments ratio was 1.36 in January, down from 1.38 in December. The manufacturing sector is on a strong upward trend. Supply chain bottlenecks are still restraining production, as well as labor force restraints. Eventually, spending will shift towards services and production will slow. However, in the near-term build prospects are robust.

The nominal trade deficit widened from $67 billion in December to $68.22 billion in January. Nominal exports were up 1% in January after rising 3.4% in December. Imports increased 1.2%, a touch softer than the 1.7% rise in December. Year-over-year, the goods and services deficit increased 53.7% from January 2020. Exports fell 7.6 and imports increased 3.2%. Exports of goods increased by $2.0 billion to $135.7 billion in January. There was a sizable increase in industrial supplies and materials, up $2.5 billion. The auto sector saw a small decrease. Imports of goods increased $3.4 billion to $221.1 billion. There was a sizable increase in consumer goods, up $3.7 billion. The auto sector saw a $1.6 billion decrease in January. The recovery in the global economy remains uneven as vaccinations are just starting in some countries. The relative strength of the U.S. economy will favor imports. Exports will catch up more slowly. Trade volumes are on the rise. Tensions with China will remain at high levels.

The employment situation improved in February as the severity of the pandemic began to diminish. Payrolls increased by 379,000, more strongly than expected. Restaurants and bars hired 286,000, accounting for 75% of the gain in payrolls. Temporary help and healthcare added workers. Manufacturers increased 21,000 but construction lost 61,000, largely because of bad weather. The unemployment rate edged down to 6.2% from 6.3%. Leisure/hospitality drove the February improvement, gaining 355,000 jobs. Payrolls increased by 166,000 in January after falling in December. The labor participation rate was steady at 61.4%. Participation has declined sharply during the pandemic. There are still a lot of people of of work. At least, 4.1 million American have been out of work for more than six months, accounting for 41.5% of the unemployed. Another 3.5 million have permanently lost their jobs. Despite the recent gain in jobs, employment growth has been weak the past few months. Gus Faucher, chief economist at PNC Financial said, “At this pace employment will not return to its pre-pandemic pace for almost seven years.”


The euro zone economy is likely in a double dip recession as COVID restriction continue to hammer the services industries. However, hopes for a wider vaccine rollout has driven optimism to a three-year peak, according to a recent survey. HIS Markit; final February composite PMI rose to 48.8 in February from January’s 47.8. The increase was due in a large part that there is near a record growth in manufacturing as factories in the 19-natn bloc that use the euro have mostly remained open after restrictions were re-imposed to curb high numbers of coronavirus cases. Governments forced hospitality and entertainment venues to remain closed and encouraged citizens to stay at home. The small upward revision does suggest another contraction in GDP in Q1. The euro zone economy contracted in the first two quarters of 2020 and analysts say the economy will contract in Q4 and the current quarter, saying risks are still tilted to the downside. The services PMI rose to 45.7 in February, up from January’s 45.4 reading.

Important Data Releases This Week

The January wholesale report will be released on Monday, March 8 at 10:00 AM. Wholesale inventories increased 0.3% in December and a similar jump is expected for January. Inventories are low and demand is high. There are still bottlenecks in the supply chains and labor is an issue.

The February NFIB small business optimism index will be released on Tuesday, March 9 at 6:00 AM. The NFIB index started the year on the wrong foot, declining 0.9 points to 95 in January. The index should increase by 1.3 points on a better health environment and diminished restrictions. Weather likely hurt some activity.

The February CPI report will be released on Tuesday, March 9 at 8:30 AM. Financial markets will focus on this report as inflation is a hot issue. The CPI rose 0.3% in January and 1.4% for the year. Energy prices were a factor, with gasoline prices jumping 7.4%. Goods prices edged up 0.1% and the service index was flat for a second month. We expect another 0.3% increase for the month. Energy prices increased, in part driven by the cold weather. Inflation is still subdued, although commodity prices are increasing, and service inflation will pick up as the economy re-opens. Even if inflation picks up early in the year, a sustained breakout is unlikely. If that were to happen, the Fed may be forced to be less accommodating.

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About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.