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.
European equities slipped for the third week in a row, as U.K.-listed stocks struggled on the anniversary of Britain’s vote to leave the European Union. Weakness in energy prices was the theme of the week. Oil was poised for a fifth week of decline as the oil glut shows no sign of ending. Oil remains in a bear market on concerns about an expanding supply in the U.S. and Libya that is countering cuts by OPEC. The S&P ended the week virtually where it began as rallies in health care offset a rout of energy producers. The S&P ended up the week 0.2% higher. West Texas Intermediate ended the week down about 4% to $43.01 a barrel.
It was a quiet week for U.S. economic data. Housing data improved, with both existing and new home sales rising. The Markit Flash June PMI for manufacturing slipped from 52.7 in May to 52.1 for June, the lowest since September. The services PMI fell from 53.6 in May to 53 in June. Overall survey-based data has been weakening after jumping following the presidential election.
Next week will be busy for economic data. The advanced durable goods and advanced trade deficit for goods is released, along with pending home sales. The third estimate for Q1-GDP growth and personal income, spending and the PCE deflator will finish out the week.
Recent data has been mixed, but overall the fundamentals remain intact. Trend data shows the economy is remaining on the right track. Employment growth is steady, despite May’s weak job report. Manufacturing is clearly in a better spot than a year earlier. Construction spending for the first four months of the year is stronger than last year, thanks, in part, to warmer weather. Inflation is still subdued. Most data points to a continued steady, but relatively modest growth of the macro-economy. Downside near-term risks are geopolitical, but they do rise later in 2018-19 as the Fed tries to soft-land a slow economy. Right now, low oil prices and weak inflation may keep the Fed on the sidelines until December. With no help expected from Washington, the economy is set on cruise, a little over 2%.
The U.S. Economy:
Existing home sales rebounded in May, rising 11% from April and were up 2.7% from May 2016. Seasonal adjusted existing home sales came in at 5.62 million units in May, higher than expected. Three out of four Census regions had increasing sales in May, suggesting the sales increase was broadly-based. Existing single-family home sales came in at an annual pace of 4.98 million, up 1% from April and 2.7% year-over-year. Listings came in at 1.74 million and the inventory-to-sales ratio was 2.4 months in May, up 0.1 from April, but down 0.6 of a month from May 2016. The May report was a break, from several months of a tightening market. Listings increased and the I/S ratio rose after three years of tightening. This is a step in the right direction towards greater new home construction. However, the pace is likely to be very slow.
The Conference Board’s index of leading economic indicators rose 0.3% in May, following a 0.2% increase in April. Leading indicators were boosted by most components, building permits and weekly manufacturing hours were the only drag. Both the leading and coincident indicators rose 0.1%. Financial markets were positive for the index in May. Stock prices contributed 0.06 of a percentage point, while interest rate spread-10-year-Treasuries less federal funds rate, contributed added 0.16 of a percentage point. The index shows the economy remains on the right track.
New single-family home sales rebounded in May, regaining some of the sharp drop in April. Sales increased 2.9% from April and are up 8.9% from May 2016. Annualized sales came in at 610,000 units in May, up from 593,000 in April. New single-family homes for sale came in at 268,000 in May, up 1.5% from April and up 11.2% y/y. The inventory-to-sales ratio in May was 5.3 months, the same as in April and up 0.1 from a year earlier. Demand is picking up as more homes are being sold before they are completed. The median of new single-family home prices to median annual family income is now 4.4, close to a record high, indicating that median income families are prices out of the market. Construction continues to lag. There isn’t so much a lack of construction workers, as a larger percent of them are involved in multi-family construction. It may take several years before supply improves affordability. Gradually, conditions should improve for new home construction.
The euro-zone may have just finished the strongest quarter in six years, but growth tailed off at the end of the second quarter. The HIS Markit’s flash Composite Purchasing Manager’s Index for June fell to 55.7 from 56.8 in May. April was the highest reading since April 2011. The services PMI fell to 54.7 from 56.3, below expectations. The manufacturing index increased to a six-year high of 57.3 from 57.0. Despite the fall in the total index, the outlook for the euro-zone looks solid. Real GDP is projected to grow 0.7% in Q2, better than the 0.6% increase in Q1. Inflation is still weak in Europe. Markit said average price increases for both services and manufacturing increased at the slowest pace in five months in June.
Important Data Releases This Week
May advanced durable goods will be released on Monday, June 26 at 8:30 EDT. Durable goods fell 0.7% in April, held back by the volatile aircraft segment. Turning to May, we expect a 0.1% increase. Excluding transportation, we project a 0.2% rise.
May pending home sales will be released on Wednesday, June 28 at 10:00 AM EDT. We expect pending home sale to rise 1.5% in May. This would offset some of April’s 1.3% decline.
May advance goods deficit will be released on Wednesday, June 28 at 8:30 AM EDT. We look for the deficit to narrow to $66 billion for May. We anticipate a modest improvement in exports and imports should moderate in May. The appreciation of the dollar has moderated in May, which should help exports. The global economy is picking up, which also helps exports,
GDP (2017-Q1 third estimate will be released on Thursday, June 29 at 8:30 AM EST. We look for GDP to increase 1.4% in the first quarter, better than the 1.2% second estimate. Net exports will be revised lower and inventories will rise by $3 billion. Consumption will also be revised higher.
May personal income and spending will be released on Friday, June 30 at 8:30 AM EST. We expect personal income to rise 0.1% in May, much slower than the 0.4% rise in April and 0.2% increase in March. Nominal spending will also remain unchanged, hurt by lower gas prices. The GDP deflator is expected to rise 0.1%, lowering year-earlier growth to 1.4% from 1.5%.