Raised Confidence is Expected but Another Government Shutdown Would Dash Expectations

By | February 11, 2019

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.


Coffee and Economic Review

Global shares fell for a third straight day on Friday as investors worried about a broadening economic slowdown and lack of any sign of a resolution in the U.S.-China trade row. The MSCI All-Country World Index, which tracks shares in 47 countries, was down 0.3% on Friday and were set to post their first weekly loss in seven. The European Commission slashed its forecast for economic growth for the euro-zone earlier in the week stoking concerns that a slowdown is spreading to Europe as businesses and investors grapple with trade friction. The Bank of England said that Britain faces its weakest economic growth in a decade this year as uncertainty over Brexit mounts and the global economy slows. Earlier in the week, Australia’s central bank signaled monetary easing in the face of economic headwinds, joining the Federal Reserve and the European Central Bank in signaling policy shifts. Analysts describe the current economic environment as “darkening skies,” using a line from the recent Word Bank report, which downgraded their expectations for global growth.

U.S. stocks finished flat on Friday, digesting January’s gains. News that President Trump will not meet with China’s President Xi before the March 1 deadline, set markets on edge but negotiations are still ongoing and both sides seem willing to reach a trade deal. With two-thirds of the S&P companies already reporting earnings, roughly 72% have beaten share expectations, which is better than feared and in line with historical averages. The S&P is expected to see fourth quarter earnings growth of 16.8%, but the future is more pessimistic, with a 0.1% decline forecast for the first quarter. Investors continue to show anxiety over U.S.-China trade relations, the slowing global growth and the now weaker corporate earnings forecast. So far this year, stocks have been on a rebound, up seven weeks out of eight, but the future may prove less solid as the economy slows down.

The flow of economic reports picked up this week, with reports on factory orders and international trade giving amore clear picture on how the economy is preforming. Factory orders have been trending lower, as uncertainty surrounding trade have caused firms to become more cautious. Many firms built up inventories of key components ahead of the implementation of tariffs last year. Those stocks have been gradually depleted. Firms have not ordered extra stocks ahead of the next March 1 deadline, a move that might prove more disruptive if it were to occur.

Data on trade does reflect the theme of some early ordering and now a waiting period to move inventories lower. The nation’s trade deficit narrowed by $6.4 billion to $49.3 billion. Imports fell 2.9% and exports declined 0.6%. The drop in imports, likely reflects the drawdown in inventories of imported raw materials built up before the implementations of tariffs last year. We are likely to see a rebound in coming months as shipments from China were pulled into December and January ahead of the Lunar New Year. The ISM no-manufacturing index fell 1.3 points to 56.7. Business activity fell 1.5 points to 59.7, a second monthly decline and new orders fell five points to 57.7. Even with January’s decline, the index remains in solid shape, just 2.4 points lower than the average of the last six months.

Next week will be busy on the economic calendar. Both the producer price index and the consumer price index will be released. Inflation will remain subdued, with a 0.1% rise in the CPI and a 0.2% increase in final demand PPI. The NFIB small business index will be released and it is likely to show a small decline due to the government shutdown. Retail sales for December will be released and is likely to show continued consumer strength. Measures of consumer confidence have declined in recent months, but the fall as a lot to do with the government shutdown. A rebound in confidence is expected but could worsen significantly if another government shutdown emerges or if there is no trade deal with China. With the global economy slowing, the driver of the economy increasingly falls on the shoulders of the American consumer. The Federal Reserve is worried that economic growth might slow too much. The future of the economy will largely depend on political developments. Issues on trade and fiscal stability may well spell the difference between an economy growing at trend, or a recession.

Latest Data

The U.S. Economy:

Factory orders fell 0.6% in November and orders for October were revised to a 2.1% decline. Total orders were up 4.1% from a year earlier. Transportation orders rose 3% in November and were up 6.1% on a year earlier basis. Durable goods orders were up 0.7% and nondurable goods orders were down 1.9%. Core nondefense capital goods orders fell 0.6% in November, but October saw an upward revision to 0.5%. This sector has been uninspiring as of late. Manufacturing should remain positive, but the road may be bumpy. Trade and the slowing of the global economy are the biggest risk.  Successful trade deal with China could be a positive input but renewed tensions could undermine the increasingly fragile international environment.

The U.S. trade deficit narrowed to $49.3 billion in November, down from $55.7 billion in October. Nominal exports decreased 0.8% on a monthly basis after holding steady in October. Capital goods exports rose 0.3% and foods, feeds and beverage exports curbed five months of losses to edge up 0.6%. Total nominal goods imports dropped 3.6% and service imports rose 0.3%. Consumer goods imports fell 7.5% in November, on the heels of 3.5% gain in October. November saw a narrowing in the deficit from an unusually high level for October. Business continue to adjust to the Trump administration’s tariffs on China and other countries. Trade flows have been volatile in recent months. November’s lower deficit was a result of weaker imports rather than a gain in exports. Petroleum product imports saw a sharp drop in November, a result of lower oil prices and high U.S. oil inventories. Further escalation in the trade conflict is on hold since the end of November. A resolution in the conflict could stabilize trade flows in coming months. However, tariffs have hurt farmers. Agricultural exports fell sharply in the last half of last year after a runup in the first half. In the long run, many U.S. exporters may find it difficult to reclaim market share lost because of tariffs.

The non-manufacturing index slipped slightly to 56.7 in January from 58 in December. Business activity slipped from 61.2 from 57.7. Eight industries reported a decline for the month, including agriculture, other services, educational services and information. New orders dropped 5 points to 57.7. 10 industries reported growth including transportation/warehousing, mining, finance/insurance and healthcare. Suppler deliveries were unchanged at 51.5. Employment rose from 56.6 to 57.8. The recent drop in the index is not too concerning. The economy remains solid and the index has been elevated for two years. There were references, concerning the government shutdown, including statements of disruption and fears about late tax refunds. A person in transportation/warehousing mentioned that “central processing unit shortages continue to impact the fulfillment of orders.”


The European Commission sharply cut its forecasts for growth in the eurozone this year and next because of an unexpected slowdown in the largest countries in the bloc caused by global trade tensions and growing public debt. The Commission said that euro-zone growth will slow to 1.3% in 2019, down from 1.9% in 2018 and rebound slightly to 1.6% in 2020. The new estimates are lower than the Commission released in November when the projection called for 1.9% growth for 2019 and 1.7% in 2020. In Germany, the bloc’s largest economy, growth I expected to slow to 1.1% this year, down from 1.5% in 2018. France, Italy, Spain and the Netherlands are also projected to see slower growth this year, with Italy expected to post the weakest growth of the bloc with a mere 0.2% growth this year. In an added concern, the Commission projected euro-zone inflation to be at 1.4% this year, below the ECB estimate of1.6% and further away from the bank’s target of 2.0%.

Important Data Releases This Week

November factory orders will be released on Monday, February 4 at 10:00 AM EST. Advance data for the durables side showed a 0.8% increase in orders reflecting a positive input from both civilian and defense aircraft. Ex-transportation orders fell 0.3% with core capital goods down 0.6%. We look for orders to increase 0.3% in November, with the addition of nondurable goods.

January NFIB small business optimism index will be released on Tuesday, February 12 at 6:00 AM EDT. The small business index is expected to slip to 103.0 for January, down from December’s 104.4 reading, which was a 14-month low. The return to work by the federal government may move the index higher for February.

The January CPI will be released on Wednesday, February 13 at 8:30 AM EDT. We look for the CPI to rise 0.1% in January and 0.2% for the core index. This will bring year-over-year readings to 1.5% for the headline index and 2.1% for the core.

The January PPI will be released on Thursday, February 14 at 8:30 AM EST. We look for the index to rise 0.2%, offsetting December’s 0.2% dip that reflected low oil prices.

The December retail sales report will be released on Thursday, February 14 at 8:30 AM EST. Retail sales are expected to post a 0.1% advance for the month of December. Flat unit auto sales ad low gasoline prices held back total spending. Excluding autos and gas, sales likely posted a stronger 0.4% increase.

The November business inventories report will be released on Thursday, February 14 at 10:00 AM EST. A modest 0.2% increase in stocks is expected for November in what would be the ninth consecutive monthly positive build.

The January import and export price report will be released on Friday, February 15 at 8:30 AM EST. After two months of oil-driven contraction, both import and export prices are projected to rise 0.2%.

The January industrial production report will be released on Friday, February 15 at 9:15 AM EST. Moderation in manufacturing is expected for January. Total IP is projected to rise 0.2%, following December’s 0.3% increase. Manufacturing is expected to increase 0.1%, much slower than December’s 1.1% advance.

The February University of Michigan’s consumer sentiment will be released on Friday, February 15 at 10:00 AM EST. At 92.5 for February, the index will only firm slightly from January’s 91.2 reading.

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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.