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 shares rose within striking distance of their highest levels in more than a year on Friday, while the dollar was buoyant, as investors cheered upbeat Chinese trade data and hopes of a business-friendly tax cuts in the United States. Europe’s STOXX 600 rose 0.2% on Friday and was poised to end the week 1% higher. Healthy corporate results and the combined uptick in regional deal making, which is seeing its strongest start to the year in more than a decade, are helping to underpin valuations. The MCSI Emerging Markets Index jumped 0.6% on the last day of trading, up 1.4% for the week and 8% so far in 2017.
Donald Trump promised to overhaul business taxes and rekindled optimism that Trump will focus early in his presidency on the pro-growth policies he promised during his election campaign. The so-called reflation trades have ebbed as the new administration focused its attention on immigration and trade policies instead. Trump said a “phenomenal” plan to overhaul business taxes may be released within the next “two or three weeks.” The S&P climbed for a fourth day for a weekly advance of 0.8%. The Dow Jones closed at a record high.
The outlook for the economy hasn’t changed as las week was relatively light on the economic calendar. The job Openings and Labor Turnover Survey (JOLTS) continued to show healthy labor market dynamics. Hiring, openings and layoffs were essentially unchanged from the previous month and there were fewer quits. The trade deficit narrowed from $45.7 billion in November to $44.3 billion in December. Nominal exports rose 2.7% in November and imports rose 1.5%. Import prices rose 0.4% in January, following a 0.5% gain in December. Nonfuel import prices fell 0.2% in January.
The economy is doing well. Strong import and export growth in December highlighted both healthy domestic demand and improving global economic conditions. This is encouraging given that exports are facing a strong headwind from the surging dollar. Firming global demand is one more encouraging signal for the U.S. factory sector that has accumulated in recent months. In financial markets, the increase in long term rates has moderated. The 10-year U.S. Treasury yield is down 10 basis points from its recent peak, but rates are still more than 50 basis points higher than before the election. This suggests weaker new and existing home sales this year.
After a quiet week, the economic calendar is jam packed, but Janet Yellen could steal some of the spotlight. She is scheduled to give her semi-annual testimony before Congress. We don’t anticipate any new news on monetary policy, but Q and A could be lively, as she will be grilled on fiscal policy, the labor market and inflation. On the economic front, retail sales probably slipped 0.1% in January. Headline and core CPI will rise 0.2%. There will be a weather effect in housing and industrial production. We look for a modest gain in housing and the warmer weather will hurt industrial production.
The U.S. Economy:
The U.S. trade deficit narrowed slightly in December to $44.3 billion from $45.7 billion in November. Total nominal exports gained 2.7% for the month, following similar declines the previous two months. Exports of goods rose 3.9% and service exports gained 0.4%. Exports of capital goods increased for a third straight months, rising 7.9%. The improvement came largely in the aircraft sector. Exports of industrial supplies increased 4.3%. Total nominal imports for a third consecutive month, rising 1.5% m/m. Automotive imports rose 5.5%. The future of trade policy remains uncertain, but the risks are weighted to the downside under the new administration. Multiple policies have been floated, including Congress’s border adjustment rule and the president’s talks of tariffs. Even if there is little legislative change, the dollar will be going higher because of inflationary pressures and higher interest rates will follow and become a drag on exports.
The U.S. is importing deflation, but the magnitude is moderating. Import prices rose 0.4% in January, but nonfuel prices fell 0.2%. Nonfuel import prices have declined for three consecutive months. The appreciation in the dollar will keep downward pressure on nonfuel import prices. Fuel and lubricant prices rose 5.85 in January, after a 6.6% gain in December. Capital goods prices slipped 0.1%. The high dollar is basically negative for the U.S. economy and a minor weight on core inflation. Tariffs continued to be discussed by the Trump administration. The higher costs would ultimately fall on the U.S. consumer, boost import prices and place upward pressure on inflation. Some of the inflationary pressure would be offset by the negative effect on U.S. manufacturing production.
German factory orders rose the most in two-and-a-half years in December, suggesting the strong run at the end of last year is continuing. Orders rose 5.2% in December, after a 3.6% decline in November. December was the highest intake in orders since July 2014. Orders were up 8.1% from a year earlier. The economy accelerated in the final quarter of 2016 and a jump in orders in December bodes well for the first quarter. The Economics Ministry said bulk orders were significantly above average. Demand for investment goods from the euro-area surged 19.5%, pushing export orders up 10% from November. Domestic orders rose 6.7% for the month.
Important Data Releases This Week
January NFIB small business survey will be released on Tuesday, February 14 at 6:00 AM EST. We expect the survey to decline from the 105.8 reading in December to 103.8 in January. The survey had increased from 98.4 in November to 105.8 in December under the assumption that the new administration’s policies would result in less regulation, taxation and increased government spending. Some of these policies will likely see some progress, but the timing involved may be longer than original projections. This suggests some backing away from the election exuberance, but confidence will remain steady for at least a few months.
January CPI index will be released on Wednesday, February 15 at 8:30 AM EST. We look for index to rise 0.2% in January, following the 0.3% rise in December. Energy prices will provide a boost, but food prices have been tame. The core will be up 2.1% on a year-ago basis.
January retail sales will be released on Wednesday, February 15 at 8:30 AM EST. We look for retail sales to slip 0.1% in January, in part due to lower auto sales. Retail sales have increased 0.2% in November and 0.6% in December. January is usually a slow month for sales. Excluding autos, we look for a 0.2% gain. The consumer is still in a confident mode.
January industrial production will be released on Wednesday, February 15 at 9:15 AM EST. Total IP is forecast to fall 0.4% in January, on weak utility output. Mining is also expected to increase, based on the growing number of rotary oil rigs being pressed into service. Manufacturing will be steady, rising a projected 0.2%.
February NAHB index will be released on Wednesday, February 15 at 10:00 AM EST. We look for the index to drop from 67 in January to 66 but remain above the average of 63 set in the last half of 2016. The trend in mortgage purchases has been flat since interest rates increased following the election, but have back-tracked a little in recent weeks.
January housing starts will be released on Friday, February 17 at 8:30 AM EST. We expect starts to increase from 1.226 million annualized units to 1.237 million in January. Starts have choppy lately because of large swings in the multi-family sector. Single-family start should see a modest gain because of warm weather that month.