Weather Was an Issue In March

By | April 24, 2017

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

France led gains in bonds before the nation goes to the first round of voting that puts the future of the common currency at play. Stock volatility hit the highest level in nine months, while European equities swung between gains and losses. The Bloomberg dollar index fell for a second week, weighted down by President Trump’s remarks that the dollar is too strong. A rebound in iron ore lent support to European miners. The Stoxx Europe 600 was little changed on Friday. The pound surged earlier this week when Prime Minister Theresa May shocked the country by calling for an early election June 8.

U.S. stocks posted their first weekly advance since the end of March, as the S&P rallied 0.9% to its biggest weekly gain in two months. Eight of 11 industry groups advanced, with industrial stocks advanced 2% and financials gaining 1%. The geopolitical concerns that loomed over markets earlier this month eased as Washington shifted to domestic policies, including funding the government before a deadline at the end of April. This week attention shifts to earnings as more than 150 members of the S&P Index report earnings, the biggest single week in over a decade. Expectations are for the strongest profit growth in the first quarter for the last five years. Disappointments over the slowness in stimulus efforts by the Trump administration are being replaced by positive earnings.

The earnings revival is following on the heels of a first quarter that is likely to come in “soft.” Evidence from retail sales, manufacturing and business inventories suggest that the first quarter will be disappointing. Weather is a factor, as a warmer than normal trend lowered expenditures for utilities. Seasonality is another factor, as the first quarter has a historical pattern of coming in weak and rebounding in the second and third quarters, a factor the Bureau of Economic Analysis is aware of. The economy appears to be fundamentally sound, as the latest Beige Book alludes to. Economic activity continues at a modest to moderate pace across all 12 districts. Moreover, activity is broad-based. Manufacturing, tourism/travel and nonfinancial services were bright spots and nonresidential construction was strong. Consumer spending varied during the mid-February to mid-March period.

Last week, industrial production made a solid gain, but the topline figure was boosted by a big jump in utility output. Weather was an issue in March, as warmer weather in January-February stole activity from March. A snowstorm in the Northeast in March also disrupted activity, including consumer spending, employment and housing. Manufacturing fell 0.4% in March and revision to previous months were unfavorable. Housing starts fell 6.8%, but permits activity advance, suggesting a rebound in coming months. Next week, we get a peek at new home sales and the advanced goods deficit for March. The advanced durable goods report is due. Also, first quarter GDP comes in as week seek insight between the strong “soft” indicators of the economy, such as the confidence indexes and the “hard” data that has been for the most part positive, but weaker in actual output.

Latest Data

The U.S. Economy:

The NAHB sentiment index took a step backwards in April, falling 3 points to 68. The index does remain elevated and still expresses optimism on current and future conditions. The April reading was still the third best in the past year. The index rests above its six month average of 66 and well above the neutral level of 50. All three major subcomponents lost ground in April. The index still indicates that the slow, steady, but unspectacular growth of the past year will continue. Rising incomes, employment and strong confidence are major drivers. Interest rates are rising and high prices will act as headwinds, but growth should continue on its slow pace.

Housing starts slipped in March, falling 6.8% to an annual rate of 1.215 million. Starts remained up by 9.2% from a year earlier. Single-family starts fell 6.2% m/m, while multi-family starts 6.1%. Permits did rise 3.6% to an annual pace of 1.26 million, suggesting better activity in coming months. The increase in permit activity was led by the multi-family component, which rose 13.8%. Permits for single-family starts fell 1.1%. Weather was likely a factor in the March slowdown in housing activity. Warm weather in January and February likely pulled some activity forward. A storm in the Northeast also affected some activity. Housing activity should continue on its long term slow rise that marked the pace of the last year. Single-family starts still have room to grow, but the multi-family component is likely to be about topped out.

Industrial production advanced 0.5%, following a 0.1% rise in February. Sizable-weather related declines in utility output in January and February were reversed in March, propelling utilities output 8.6% higher from the prior month. Mining advanced 0.1%. Manufacturing lost momentum in Mach, falling 0.4%. Part of the decline was auto related, as output in that sector fell 3.0%. Durable goods production declined 0.8% for the month. Excluding the auto sector, manufacturing fell 0.2%, reversing several months of gains. Consumer goods output rose 0.2%, while business equipment production fell 0.4%. For the quarter, total IP rose at an annual rate of 1.5%, while manufacturing advanced 2.7%. Despite the setback in March, the trend for manufacturing remains positive. Survey results have been far more optimistic than actual output, driven by the post-election surge in confidence based on promises made by the new administration. The gap between “hard” and “soft” data has been narrowing, as the probabilities that investment and fiscal stimulus bill will be delayed, or watered down in the current Congress. Autos appear to have leveled off, but mining is advancing as more domestic oil rigs come on line. Business investment will remain cautiously positive, but trade is still subject to question under the new administration.

The Conference Board’s index of leading economic indicators rose 0.4% in March, slightly slower than the 0.5% rise in February. The March improvement was broad based, led by interest rate spread and the ISM new orders index. The coincident indicator rose 0.2% in March and the lagging indicator was unchanged from February. Eight of ten components advanced in March the ISM new orders index, manufacturers’ new orders for nondefense capital goods excluding aircraft, manufacturers’ new orders for consumer goods and materials, building permits, stock prices, leading credit index, interest rate spread and consumer expectations for business conditions. Two components were negative: average workweek of production workers for manufacturing and initial claims for unemployment insurance. The index suggests economic conditions to improve in the near term. Growth will be based on consumption and investment. The strong dollar is a headwind as the Fed normalizes interest rates.

Existing home sales resumed their upward trend in March. Total sales increased 4.4% for the month and were up 5.9% from a year earlier. Sales came in at an annual pace of 5.71 million, up 5.47 million in February. Single-family sales rose 4.3% m/m and were up 5.9% from March 2016. Condo/co-op sales came in at 630,000, up 5% from February. Inventories increased in both markets. Listings for single-family homes came in at 1.61 million, with an I/S ratio of 3.8 months. That level is considered tight, as about half the units sell within one month. The tightness in the market is mainly due to lagging supply, not demand. Sales are still below the pre-recession level and prices have increased between 5-7% for the last three years, with no signs of acceleration. The March report was good news, but it is still too early to tell if activity is accelerating to a higher level on a sustained basis.


China’s GDP rose at a 6.9% rate in the first quarter from a year earlier, driven by higher government infrastructure spending and a still hot property sector that boosted industrial output by the most in over two years. Fixed asset investment expanded 9.2%, up from 8.1% last year. Retail sales increased 10.9% and industrial output 7.6% from a year earlier .Analysts did say that the first quarter may be the strongest quarter of the year as much of the growth came from steel and a property market that shows signs of over-heating. Slightly slower growth is expected for the remainder of the year as tightening measures in the property market start to take effect. China produced a record amount of steel in March, buoyed by a near 12% increase in housing starts. However, production is outrunning demand and that could lead to a glut later this year. China’s central bank has gingerly shifted to a tightening bias in recent months, seeking to gently brake the housing market and control credit growth.

The euro-area’s economic momentum accelerated to the fastest pace in six years. France’s composite PMI advanced to a six-year high of 57.4 in April, putting it ahead of Germany for the first time since 2012. The euro-zone’s composite PMI rose to 56.7 in April from 56.4 in March. There was growing evidence of increasing wage pressures. The gauge for manufacturing rose to 56.8 from 56.2, the highest in six years. Euro-area price pressures remain elevated, with both input prices and those charged for goods and services close to a six-year high. Elsewhere in the region, the pace of expansion has accelerated to a ten-year high, cementing the increasingly broad-based nature of the upturn.

Important Data Releases This Week

The April Conference Board’s index of consumer sentiment will be released on Tuesday, April 25 at 10:00 AM EDT. The index is expected to fall slightly from 126.6 to 122.5. The Conference Board’s index has been outperforming the University of Michigan’s index since the election. Confidence is consistent with spending increases of 4% and actual first quarter expenditures will fall well short of that. Confidence is still well north of actual economic activity, but is starting to decline to better reflect a still decent reality.

March new home sales will be released on Tuesday, April 25 at 10:00 AM EDT. We look for sales to fall from 592,000 to 580,000 3% in February. Sales have been volatile and March had a snowstorm in the Northeast.

March advance goods deficit will be released on Thursday, April 27 at 8:30 AM EDT. We look for the deficit to narrow to $64 billion for March. The early Lunar New Year distorted January-February trade figures and March will give us better look at trade.

February pending home sales will be released on Thursday, April 27 at 10:00 AM EDT. We look for sales to have fall 1.3% in March to 5.5 million.

GDP (2017-Q1 will be released on Friday, April 28 at 8:30 AM EST. We look for GDP to increase 1.0% in the first quarter. Spending has been soft and inventories are weak leading to the first quarter softness.  Real activity is more balanced. Weather was a factor in the first quarter weakness. Warm weather depressed utility spending in January-February and a snowstorm slowed auto sales in March. Residential investment will be positive and equipment spending is picking up. Exports will likely be neutral.

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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.