With the trade skirmish shifting from saber-rattling to actual policy, the market handled it very well on Thursday.  A part of the reason was an overture from the Chancellor of Germany, Angela Merkel, with respect to possibly reducing European Union (EU) tariffs on American car exports to the continent.  

Meanwhile, $34 billion in tariffs on Chinese imports became official last night, but Chinese trade proxies were generally higher except soybean prices, which are now down more than 18% in the last three months.

China Trade War Proxies:

• Semiconductors (SOX) +2.7%
• Boeing (BA) unchanged
• Caterpillar (CAT) +1.5%
• Apple (AAPL) +1.5%
• Soybeans 1.1%

S&P 500 Index	+0.86%
Consumer Discretionary (XLY)	+0.50%
Consumer Staples (XLP)	+1.40%
Energy (XLE)	-0.11%
Financials (XLF)	+0.19%
Health Care (XLV)	+1.05%
Industrials (XLI)	+0.46%
Materials (XLB)	+0.87%
Real Estate (XLRE)	+1.31%
Technology (XLK)	+1.42%
Utilities (XLU)	+0.57%

Improving Breadth

Technology led the way powered by a rebound in chip makers, but value-hunters are still looking at consumer staples.  Market breadth was the best in a long time as there were overwhelmingly more advancers on advancing volume than decliners. On the NYSE, new 52-week highs edged up to 78, against only 37 new lows. On the NASDAQ, 85 names hit new 52-week highs against 37 new lows.

Economic Juggernaut versus Trade War

Today is the big monthly employment report from the Federal government that is considered the most important monthly report card on the U.S. economy. The report is always preceded by the employment report from ADP, which I think is more comprehensive, but it doesn’t move the market.

That said, the ADP report came in slightly less than expected, although the prior month of May was revised higher. For me, the most important part of the report is what’s happening in goods-producing jobs - or as I call them, “dirty fingernail jobs.”

• Mining +5,000
• Construction +13,000
• Manufacturing +12,000

In the 18-months that President Trump has been in office, goods-producing jobs have come in at an average of 40,700 (18 months ago, the average was 10,700). 

Rev up that Diesel

Truck driver jobs are in an extremely short supply and will probably become more acute.  The record pace of Class 8 truck orders continues with June orders surging to 42,200, according to the Americas Commercial Transportation Research (ACT).  To put this in perspective, the industry saw 18,700 orders in July 2017. It was the first year-over-year increase in orders since November 2015. 

Keep in mind, truck demand and traffic for the U.S. economy is what blood pressure is for a lot of people. However, every doctor appointment, even emergencies, begins with a check of your pulse.

Trucking is a great proxy for the economy so consider these comments and observations:

Best Market Ever

“This is the tightest capacity crunch ever. Long-time veterans in this industry are saying this is the best freight market they have ever seen. Fleets cannot add capacity fast enough and as long as the economy and manufacturing are going great, this capacity crisis will continue.”

“There is a shortage of truck parts and components, so OEMs have been slow to deliver. This just exacerbates an already bad situation. Fleets are now grabbing every available build slot, hoping to get some more trucks by the end of the year. Some orders now are even spilling into the first quarter of next year. It is a red-hot market.”

 - Don Ake, vice president, Freight Transportation Research (FTR)

Demand Index

Truckstop.com underscores those observations, as the Market Demand Index (MDI) for the spot market is a record 77.1, or 77 loads to every truck; 7.0 is considered normal demand.  In January 2016, the MDI was 21.2.

Today’s Session

Nonfarm payroll beat the Wall Street’s expectations and rose 213,000 in June. Economist had forecasted 195,000. May increased from 223,000 to 244,000 and April was revised higher from 159,000 to 175,000. The labor force participation rate increased 0.2% to 62.9 percent as 601,000 people poured into the labor market. While this negatively skews the U3 unemployment rate, it is great news, and the best way to survey American optimism.  Average hourly earnings increased 2.7% year over year vs expectations of a 2.8% increase. The unemployment rate however crept higher from 3.8% to 4%. 

Most Important Takeaways:

• Net Jobs +213,000
• Good Producing jobs +53,000
• Manufacturing +53,000
• Construction +13,000
• Mining +4,000

While democrats work on making immigration a wedge issue, Hispanic June employment trends were very impressive:

• Labor Force +164,000
• Employed +250,000
• Unemployment Rate 4.6% from 4.9%

The market initially reacted positively to the news but has opened mixed.  

Comments

As a former 1st-Line Production Supervisor, in Attleboro, MA for Texas Instruments, I always like to hear about uptick in Mfg. so please keep me posted because I wrote Procedures Manuals for Shop Floor Control and, was applying Management By Objectives practices, following Drucker, etc...Please let me know about any precious metal investment ideas connected to Manufacturing. Kevin O. Grier Kevin O. Grier on 7/6/2018 2:43:32 PM

Do you mean truck drivers are in short supply rather than truck driver jobs? Clifford Hope on 7/7/2018 1:01:48 PM

It is fair to say that many economists believe that import duties are negative for any economy. These pundits want you to believe that keeping goods cheap even with unemployment is OK. This means that having a 10% or more unemployment so price can stay low is economically positive. What is wrong with having a low unemployment and producing in America. The purchasing power, in America, is kept high and the working American worker pays income taxes. With Obama the high unemployment produced the payment of entitlements causing the working class to pay more income taxes to support these entitlements going to the unemployed. 10% or more unemployment is unacceptable, high income taxes is unacceptable as well. Providing American with job that pays a descent income is the only way and economy will work fairly. There will always be a class of American that cannot compete primarily for medical reason. Those people need and should get entitlements. Many foreign countries economies export the excess production at tax free prices. France is de-taxing all export meaning no TVA. Is this fair!! Marcel Depart on 7/7/2018 11:01:23 PM

Tweet

 

Home | Products & Services | Education | In The Media | Help | About Us | Disclaimer | Privacy Policy | Terms of Use | All Rights Reserved.