August 19, 2019

Brad StevensEconomic News

Hard to believe we are half way through the 3rd quarter this year.  From what I am hearing my clients and contacts are kind of split.  Some are really strong with continued orders while others are flat with orders trickling in.  No real rhyme or reason to who is up and who is down.  For what it is worth there are many new projects in initial phases related to hospitals, new or expanded buildings and redevelopment right now.  This should portend to a good early 2020 if the approval process goes smoothly on them.  Other areas are not so great.  The mines in Northern Minnesota are again starting to struggle and the continued delays on the approval of both the Polymet mine and the new pipeline are not helping.  Hopefully solutions can be found so the Iron Range can again start to gain ground economically.

Just when the Producer Price Index shows little to no inflation, the consumer price index shows a moderate increase.  Nothing unexpected but higher than many thought might occur.  While many prices in the consumer area in July were flat, key areas of increase boosted the level to .3% for the month.  Airline fares increased for two reasons, first was the bump in oil prices that carried over from June into early July before abating.  The other was the overall travel demand as consumers vacation this summer.  If you are going to have higher inflation, an uptick in consumer spending is a good reason for it.  Health Care expenses continue to rise with some pretty good jumps in July.  Between health insurance and overall cost of care rising, it would be nice if someone in Washington could come up with a program.  The prior program before 2010 was problematic, The Affordable Health Care Act has not lived up to any of the expectations promised and not with the gridlock in Washington DC no one is proposing or working on a program that will alleviate the what is becoming a significant drag on our economy.  Housing costs continue to rise as the amount of supply of both existing and new construction are limited.  Current owners are keeping their houses while builders find it hard to acquire land at a price level that makes for a final house cost that the middle class can afford.  At .3% we are not talking rampant inflation, keeping it in perspective, prices in the last year have risen about 2%.  That is a long way from 3 to 5% inflation that has occurred in the past.  The current level is about what the Fed is targeting. 

July Manufacturing production moved into negative territory posting a slight contraction.  Likewise US Manufacturing Capacity Utilization also went down, from 77.8% to 77.5%, not a big drop but a sign that things are tightening in manufacturing.  The slow down is multifaceted.  The US economy is doing ok and still growing, the consumer is spending well and keeping things going.  However, most other economies in Europe, Asia and the Far East are slowing to an extent that they are impacting our manufacturing.  The strong Dollar along with the tariffs are also impacting what we sell overseas.  Below I discuss Boeing which is also a drag on manufacturing.  Not a big surprise that manufacturing is in a slight contraction.  We do need some sort of stimulus to boost the economy. Whether that is a second tax cut or a infrastructure bill to be quickly passed remains to be seen.  Monetary policy with lower rates is already proving to be ineffective. 

Boeing’s big ouch continues.  No news on the fix to put the planes currently on mothballs back in the air.  Worse, fourth month in a row with no new orders for the 737 Max.  Boeing had indicated that they would continue to produce the 737 Max based on orders from 2018, targeting to build about 58 planes per month.  However that number is down to 42 or less now as the orders made prior to the troubles the plane had are now being cut back.

Have a great week.