U.S. Unemployment Headed in the Right Direction

By | May 24, 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.

Overview

Asian tech and growth stocks rallied in Friday, following Wall Street’s overnight lead, as investors tempered fears about inflation and the prospects of an early tapering of stimulus by the U.S. Federal Reserve. Japan’s tech heavy Nikkei and Taiwan’s stock index stood out in the region, with gains of 0.8% and 1.2% on Friday, respectively. Overall, MSCI’s broadest index of Asian-Pacific shares outside of Japan added 0.1%, putting it on track for a 1.9% weekly gain. Analysts said that equities are still trying to figure out where inflation will go and what that might mean for Fed policy down the line. Oil recovered slightly after a sharp decline on Thursday, after diplomats said progress was made on a deal to lift U.S. sanctions on Iran. Brent crude ended the day at $65.27 a barrel and West Texas Intermediate came in at $62.21 a barrel.

U.S. stocks ended mostly lower on Friday, weighed by technology and consumer stocks, while the dollar edged lower after stronger than expected U.S. manufacturing data. Data firm HIS Markit said its flash U.S. manufacturing PMI increased to 61.5 in the first half of May, the highest reading since October 2009, following a 60.5 reading for April. Rising U.S. inflation risks have spooked markets and minutes on Wednesday from the Federal Reserve’s last meeting suggested that some policy makers were ready to start talking about reducing stimulus by tapering bond purchases. The Dow Jones Industrial Average rose by 123.69 points, or 0.36% to 34,207.84, The S&P 500 lost 3.26 points, or 0.08% to 4,155.86 and the Nasdaq Composite dropped 64.75 points, or 0.48% to 13,470.99.

Last week, economic data was light and focused on housing. Existing home sales dropped 2.7% in April to 5.85 million units annualized, falling back the level reached in July 2020. The median existing home price has increased 19.1% from a year ago to $341,600. Demand is strong but inventories are low for existing homes and that situation will not improve over the next few months. Housing starts decreased by 9.5% in April after surging in March. Starts came in at a seasonal adjusted annual pace of 1.569 million, down a from a 1.733 million pace in March. The current level of starts was up 67.3% from a year earlier, when the economy was shuttered by the pandemic restrictions. Single-family starts fell 13.4% below March’s level to an annual pace of 1.087 million units. Building permits rose by 0.3% to an annual pace of 1.1.760 million units, up 60.9% from a year earlier. Single-family permits decreased by 3.8% m/m to an annual rate of 1.194 million. The reopening of the economy and still low mortgage rates will likely keep the housing market active through the end of the year. However, sky-rocketing prices and a tight labor market may cool activity the next few months.

The Conference Board’s index of leading economic indicators increased 1.6% in April, following a 1.3% rise in March. With April’s increase, the index has now fully recovered from the pandemic. Although employment and production have not fully recovered from pandemic levels yet, the LEI does suggest the economy’s upward trend will continue.

U.S. initial claims for unemployment benefits continue to head in the right direction. New filings fell by 34,99 to 444,000 in the week ending May 15, which includes the payroll reference period. New filing have fallen in five of the past six weeks and are the lowest since the pandemic began. The number of those filing for Pandemic Unemployment Assistance fell from 103678 to 95,086 in the week ending May 15. The good news on the initial and Pandemic Unemployment Assistance were offset by continuing claims, which increased by 111,000 to 3.751 million in the week that ended May 8. This may mean a weaker employment report for May, although the overall trend is in the right direction.

This week will be focused on new and pending home sales, durable goods orders and personal income and outlays.

Latest Data

The U.S. Economy:

Housing starts decreased by 9.5% in April after surging in March. Starts came in at a seasonal adjusted annual pace of 1.569 million, down a from a 1.733 million pace in March. The current level of starts was up 67.3% from a year earlier, when the economy was shuttered by the pandemic restrictions. Single-family starts fell 13.4% below March’s level to an annual pace of 1.087 million units. The April pace for the multi-family sector was 470,000 units. Building permits rose by 0.3% to an annual pace of 1.1.760 million units, up 60.9% from a year earlier. Single-family permits decreased by 3.8% m/m to an annual rate of 1.194 million. Multi-family permits equaled 559,000 in April. The sky-rocketing cost of lumber and raw materials may bee having a cooling effect on the market. March’s numbers were boosted by a rebound from February’s weather-impacted lower numbers. The overall market should remain resilient through the remainder of the year. Mortgage applications have fallen in recent weeks, a factor that may be signaling a cooler market in coming months.

Existing home sales dropped 2.7% in April to 5.85 million units annualized. Sales equaled roughly the same as last July. Home resales did surge 33.9% on a year-over-year basis. That figure was distorted by the plunge in sales in April 2020, when the economy was largely shutdown by COVID restrictions. Builders are having trouble finding raw materials, that have sky-rocketed upwards in recent months and are facing labor shortages. The result is that builders are having trouble ramping up construction of new homes. The end result is that strong demand and a low level inventories of existing homes. There has also been a sharp increase in price. The median existing home price has increased 19.1% from a year ago to $341,600. Inventories are down 20.5% from a year ago. The inventory-to-sales pace is 2.4 months in a market where 6-7 months is normal. Demand will be strong through 2021, although mortgage rates may rise if the Fed starts to taper bond market purchases. The economy is accelerating, and mortgage rates are still low historically, factors that will drive housing activity.

The Conference Board’s index of leading economic indicators increased 1.6% in April, following a 1.3% rise in March. With April’s increase, the index has now fully recovered from the pandemic. The index last peaked in January 2020. The coincident index increased by 0.3% in April from March. Although employment and production have not fully recovered from pandemic levels yet, the LEI suggest the economy’s upward trend will continue. The Conference Board now projects real GDP growth of between 8-9 percent in the second quarter annualized with year-over-year growth reaching 6.4% for 2021.

International:

The euro zone economy declined by 0.6% in the first quarter of 2021, confirming a technical recession, as gross domestic product contracted in all the larger countries except France. Real GDP fell 1.8% on a year-over-year basis in the first quarter. Real GDP had fallen 0.7% in the final quarter of 2020, for a 4.9% decline year-on-year. The economies of Germany, Italy, Spain and the Netherlands all contracted. France’s economy grew by 0.4%. Eurostat also said unemployment fell 0.3% in the first quarter after a 0.4% rise in the fourth quarter. This equated to a 2.1% year-over-year decline. In a separate release Eurostat said that imports from Britain were down by more than a third in the first quarter of 2021 following Britain’s exit from the single EU market. The 27-nation’s trade surplus with Britain rose to 35.8 euros ($43,73 billion) as exports were down a more modest 14.3%. The trade volume was more marked in January and less in March.

Important Data Releases This Week

The April new home sales report will be released on Tuesday, May 25 at 10:00 AM. The March report showed new home sales came in at 1.02 million. April was a slower month for housing in terms of starts and existing homes, in part because March saw a rebound in activity from a weather-impacted February. New home sales are projected to remain unchanged for April.

The April durable goods report will be released on Thursday, May 27 at 8:30 AM. March saw durable goods orders advance by 0.5%. Demand is strong but manufacturers are feeling the pinch caused by supply and labor shortages. Still, despite notable troubles in the auto industry, mainly caused by shortages of semiconductors, most industries are seeing increased production, albeit constrained by shortages. Orders for durable good are projected to rise 0.6%.

The April pending home sales report will be released on Thursday, May 27 at 10:00 AM. The pending home sales index increased by 1.9% in March. We expect sales to rise by 0.5% in April.

The April personal income and outlays report will be released on Friday, May 28 at 8:30 AM. Incomes jumped by over 20% in March, due to the stimulus checks and spending increased 4.2%. Incomes will increase near to 3.0% as the stimulus fades and spending will advance 1.5% for April.

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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.

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