FTR Monday Morning Coffee Blog — Economic Review of April 21-25

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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.

Overview

The first quarter was soft, hurt by harsh winter weather and a modest inventory correction. These temporary weights are fading, helping growth reaccelerate. Recent data has been more upbeat, suggesting the economy regained velocity as weather normalized in March. Outside of housing, March data has been solid and this momentum is carrying into the second quarter. Real GDP will gain strength in the second quarter and likely hit near the 3% mark in the second half of the year.

Last week’s data made the prospects for business investment look better. The advance durable goods report showed new orders rising 2.6% in March. Core capital goods and shipments rose at healthy levels. New orders are running ahead of shipments, indicating stronger equipment spending this quarter.

Housing is testing the strength of the second quarter, with both existing home and new home sales disappointing for March. Fundamentals for housing remain solid and interest rates are stable, suggesting that some bounce back in construction will be seen in coming months.

Next week will clarify second quarter growth views. April reports on manufacturing, labor market conditions, auto sales and the ISM manufacturing are likely to show that a decent second quarter is shaping up.

Latest data: April 21-25

The U.S. Economy:

On par with expectations, existing home sales were basically flat in March, dropping 0.2% from February to 4.59 million annualized units. Sales are running at the slowest pace since June 2012 and are down 7.5% from a year earlier. The months of supply increased from 5 to 5.2 months. The market is tight, but conditions are loosening. The number of homes for sale were up 3.1% from last year. New home sales slid to 384,000 annualized in March. Sales dropped 14.5% from February. Months of supply increased to 6.0 from 5.0. Housing is having troubles but we do look for a modest rebound in activity as the year progresses.

New orders for durable goods rose 2.6% in March, following February’s 2.1% increase. Excluding transportation, new orders rose 2%. Total shipments gained 1.1%. Capital spending details were solid, Core (nondefense excluding aircraft) orders rose 2.2% and shipments gained 1%. The report was positive all around. Transportation orders pushed the headline figure up, but the strength of orders excluding that volatile element was heartening. Aircraft and autos were strong. This suggests autos are recovering from the winter dip. Capital equipment spending improved in most industrial segments. Business investment in equipment will be solid in 2014, if this near term trend holds. Fundamentals favor investment in both machinery and people this year. The recent lull in manufacturing will not last long.

International:

China’s economy has not responded to policy makers’ stimulus efforts so far, according to an important manufacturing gauge. The preliminary Purchasing Manager’s index from HSBC and Markit Economics was 48.3 in April. The reading was up slightly from 48 in March. The State Council on April 2 outlined a package of spending on railways, housing and tax relief to support growth. China will also start construction on a batch of energy projects to stabilize energy production. The People’s State Bank cut the requirement ratio for some banks as much as 2 points effective April 25. That move will unlock some $14 billion. China is trying to balance growth with further control over shadow banking. The economy is projected to grow 7.4% this year, the slowest pace since 1990.

China’s GDP rose 7.4% in the first quarter of 2014, the weakest pace in six quarters. Property investment fell sharply, testing Chinese leaders’ commitment to rein in credit. Expansion slowed from 7.7% in the final quarter of 2013. The value of property sales fell 5.2% in the first quarter. Industrial production rose 8.8% in March from a year earlier, while retail sales rose 12.1%. Premier Li said that China needs growth of about 7.5% this year to sustain employment.

The Purchasing Manager’s index from Markit Economics rose to 54 from 53.1 for the euro zone for April. The reading was the highest in almost three years. Data shows the euro zone economy is more resilient than expectations.

Next Week: April 28-May 2

This coming week will be relatively heavy for economic data.

The Conference Board’s Consumer Confidence Index for April will be released on Tuesday at 10:00 AM EDT. Confidence likely firmed in April, with the index forecast to rise a couple of points.

ADP employment for April will be released on Wednesday at 8:30 AM EDT. Payrolls likely added 190,000 jobs, compared with 178,000 in February.

GDP (First Quarter 2014) first report will be released on Wednesday at 10:00 AM EDT. First quarter GDP will be soft in the 1.5% to 2.2% range.

FMOC Meeting (April) on Wednesday at 2:00 PM EDT. The Federal Reserve has a communication problem on the timing of the first increase. Look for clarity.

Personal Income for March will be released on Thursday at 8:30 AM EDT. Look for a 0.4% advance after a 0.3% gain the prior two months.

Construction spending for March will be released on Thursday at 10:00 AM EDT. Look for a small loss based on weakness in the residential sector.

ISM Manufacturing Index will be released on Thursday at 10:00 AM EDT. Look for the index to rise for the third consecutive month, slightly above the first quarter average of 52.7.

Vehicle Sales for April will be released on Thursday at 4:00 PM EDT. Vehicle sales rebounded strongly in March. Look for a small dip from 16.4 million to 16.2 million.

Employment Report will be released on Friday at 8:30 AM EDT. April looks good for employment. Payrolls should break the 200,000 mark.


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