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 bounded back on Friday, with Asian stocks recovering from a three-month low, as investors focused more on optimism about the global economic recovery than rising tension between the West and China. European stocks looked set to open higher, with Euro Stoxx futures rising 0.8%. MSCI’s ex-Japan Asia index rose 1.43% after hitting a near three-month low on Thursday. The Shanghai Composite Index gained 1.53%, snapping a three-day losing streak. On Thursday, Chinese shares fell near a three-month low after the European Union joined Washington’s allies last week in imposing sanctions on officials in China’s Xinjiang regions over allegations of human rights abuses, prompting retaliatory sanctions from Beijing. Analysts say that the sanctions so far have been largely symbolic and should have little economic impact. However, the Sino-U.S. confrontation is affecting market sentiment.
Wall Street rallied on Friday as investors bet on a recovery that is expected to deliver the fastest economic growth since 1984. The Dow Jones Industrial Average rose 453.4 points, or 1.39% to 33,072.88. The S&P 500 gained 65.02 points, or 1.66% to 3,974.54 and the Nasdaq Composite added 161.05 points, or 1.24% to 13,138.73. The S&P and the Dow ended a see-saw week higher as investors rebalanced their portfolios at the quarter’s end continued to buy stocks that stand to benefit from a growing economy, while they added some beaten-down technology shares.
U.S. initial claims for unemployment insurance are volatile week-to-week, but if a drop is sustained, the labor market may be moving in the right direction. Initial claims for unemployment insurance benefits decreased by 97,000 to 684,000 in the week ending March 20. The four-week moving average fell from 749,000 to 736,000 in the week that ended March 20. Those claiming Pandemic Unemployment Assistance decreased from 284,254 to 241,745 Claims fell below a million for the first time since the pandemic began.
Last week showed larger-than-expected declines in durable goods orders as well as new and existing home sales do not signal a shift in the economy’s strong underlying momentum. Some pay back can be expected in home sales during a severe bot with winter weather in the normally slow winter months. Survey data suggest production and employment are still in the early stages of revving back up and unemployment claims fell to the lowest level since they spiked at the onset of the pandemic. Personal income and spending fell sharply in February, However, that followed a strong January, fueled by the stimulus efforts. Incomes and spending are likely to spike and fall again in coming months as more stimulus is heading to consumers wallets.
Advance orders for durable goods declined 1.1% in February, with modest declines in most industry categories. Orders for vehicles plunged 8.7% during the month, accounting for most of the total decline. This followed a long string of increases and orders are up 12.7% annual rate the last three months. Manufacturing surveys are still positive. Shipments fell 3.5% in February, but weather likely affected some of that decline. There are widespread production and shipping bottlenecks. Since demand is global in nature, that problem will not vanish overnight. Business investment is likely to remain solid, but some moderation from recent strength can be expected.
Next week we get a look at the ISM manufacturing index, construction spending, vehicle sales and employment data.
The U.S. Economy:
The Chicago Fed National Activity Index fell to -1.09 in February, the lowest value since April, from 0.75 in January. Values below -0.7 have been historically associated with a recession. Thirty indicators improved from January, while 55 indicators deteriorated. Production-related indicators contributed -0.85 to the CFNAI in February, down from 0.37 in January. Adverse weather played a part in industrial production declining 2.2% in February, after rising 1.1% in January. The sales orders and inventories category edged down to 0.03 in February from 0.06 in January. The personal consumption and housing category contributed -0.29 to the CFNAI in February, down from 0.27 in January. The contribution of the employment, unemployment and hours worked category edged down 0.02 in February from 0.04 in January. February was marked by the severe weather that shut down many petroleum facilities along the Gulf Coast and a fall off in spending from January’s stimulus fueled level. March will mark the start of a new stimulus effort, as well as a return to normal weather, suggesting the index will improve in coming months.
Existing home sales dropped 6.6% in February to 6.22 million units annualized, cooling from their cycle high reached in late October. Rising home costs spurred by increasing mortgage rates moderated housing demand at the end of February. Severe winter weather in February likely was a factor in February’s slowdown. Sales in February were 9.1% higher than a year earlier. Both single-family and condo/co-op both dropped, declining 6.6% and 6.7%, respectively. Sales fell in the Midwest, Northeast and the South regions but increased in the West. The inventory-to-sales ration was 2 months in February, down from 3 a year ago, which is also considered low. The tight supply is driving up prices, which were 15.8% higher than in February 2020.
New home sales fell 18.2% in February to 775,000 units, lower than expected. Severe winter weather was likely a factor in limiting sales. Sales were up 8.2% above year earlier levels. There was a upward revision to January to 948,000 annualized units. New home sales declined in all regions, but the Midwest had the biggest decline. The inventory-to-sales ratio was 4.8 months in February. With rising mortgage rates and high prices, we do see some cooling in the housing market.
The prospects for U.S. business investment remain favorable and the drop in durable goods orders will likely be a blip. Orders fell 1.1% in February, the first decline since April. Excluding transportation, orders were down 0.9%. Excluding defense, orders were down 0.7%. Shipments fell 3.5% in February, following a 1.7% advance in January. Inventories edged up 0.2%, following two monthly decreases. Nondefense new orders for capital goods increased 5.6%, but the core index was down 0.8%. Severe winter weather likely played a hand in February’s decline in orders. Petroleum products facilities along the Gulf Coast were shut down. The prospects for the industrial sector remain intact. Inventories are low and demand has been strong. This is just likely a weather-influenced temporary decline.
Real personal income contracted 7.1% in February. The decline was expected as January’s data was juiced up by the disbursement of funds from the Coronavirus and Relief Supplemental Appropriations Act, which passed in late-December. That fading caused government transfers to drop by 27.4% in February. Compensation of employees held flat. The personal savings rate fell from 19.8% in January to 13.6% in February. The falloff in stimulus and severe winter weather did have an impact on spending. Real personal spending slumped 1.2% in February. Following a January gain of 3%. Goods spending fell 1.4%. The PCE deflator rose 0.2% in February, following a 0.3% in January and a 0.4% rise in December. Energy prices were up 3.8%, the second consecutive monthly gain in excess of 3%.
U.S. net exports will likely be a drag on first quarter GDP growth. The nominal goods deficit widened from $84.6 billion in January to $86.7 billion in February. Nominal goods exports dropped 3.8%February and the weakness was fairly broad based. Imports also fell 1.4%. A standout was automotive vehicle imports and exports, which were down 19.7% and 5.9% respectively. A similar pattern to the drops in automobile production and durable goods orders, the weakness is likely attributed to the global semiconductor shortages.
Important Data Releases This Week
The March ISM manufacturing report will be released on Thursday, April 1 at 10:00 AM. The ISM manufacturing index was at the highest level in two years. The rebound in the factory sector is limited mostly by supply chain constraints, which suggest longer deliveries could raise the index higher than February’s 60.8 reading.
The February construction spending report will be released on Thursday, April 1 at 10:00 AM. Construction spending was strong in January, rising 1.7%. Severe winter weather likely hurt activity in February, projected to fall 1.5%.
U.S. March vehicle sales will be released on Thursday, April 1 at a varying time. Sales in February came in at 15.7 million, hurt by the winter weather. Sale should top 16 million in March.
The March employment reports will be released on Friday, April 2 at 8:30 AM. While many parts of the economy have rebounded quickly, the labor market has been slower to get back on his feet. Fed Chairman Jerome Powell said recently that he expects a great deal of hiring later this year would likely result in a rise in the participation rate as discouraged workers will be drawn back to the labor force and that suggests only a slow lowering of the unemployment rate. Leisure and hospitality will be the biggest driver of job growth this year as the pandemic ends. Better weather will help the March report, with a projected 630 thousand new jobs.
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