Mid July marks the start of the County Fairs around the nation. This bit of Americana provides a nice break where we can check out the food competitions, the vegetable and flower exhibits, take in some rides, and see the best of the next generation in the 4-H competition. I forgot to mention the best part of all, the demo derbies and the tractor pulls. Bring ear protection.
The on-going conversation continues to be, are we in a recession or not? Will the second quarter provide a negative GDP or will we edge out a gain, narrowly missing the recession bullet, for now? Most economists are solely looking at the job market and denying that the economy is in a recession. We have never entered a recession with a strong labor market. At 3.6% unemployment and a U6 unemployment number of 6.7%, we continue to have a hot labor market.
The Jobs Report for June that was released on Friday was very interesting. The non-farm employment increased by 372,000 in June. The strongest areas of growth were professional and business services, leisure and hospitality as well as health care. Of note, government payrolls declined by 9,000. Manufacturing hired on 29,000 new hires in June. The manufacturing number is noteworthy as overall employment in Manufacturing is now at pre-pandemic levels. Retail trade employment numbers maintain a downward trend as that market segment continues to struggle.
While the numbers look really good, is it enough to keep the economy out of a recession? The key question here is why the strong hiring if we are seeing other indicators reflecting a down turn? The answer could be that employers are still trying to catch up to meet even the lower demand that is occurring on the sales floor. Many employers have hiring signs out but no candidates. If this assessment is correct, we could be in a recession with a strong labor market. Businesses have been beset with the inability to meet existing demand due to supply chain issues and a continued lack of employable candidates to hire. This would lead to lower or flat revenues.
Comparing notes from the first quarter on other economic indicators could tell us how close to a recession we are. Total vehicle sales for the first quarter this year came in at 42.41m. For the second quarter this fell to 40m. The second quarter numbers reflect both an ebbing of demand due to prices but also the inability of automakers to sell what they can not make in the supply short environment we find ourselves in.
The ISM Non-manufacturing index for the first quarter was 58.1. The second quarter average was 56. Non-manufacturing accounts for over 70% of the economy. The ISM Manufacturing index for the first quarter was 57.66. For the second quarter that average fell to 54.9. Manufacturing accounts for about 12% of our economy. Please understand that any number over 50 is reflective of growth in the sector. The lower averages mean there is growth, but at a lower level.
New factory orders continue to grow but at a pretty tepid level month over month. The number has not changed much between the first and second quarter this year.
The bump in interest rates as well as increased housing prices have driven down housing starts during the second quarter. While the inventory of houses on the market has now stretched to 2.6 months of supply, it is well off the norm of 6 months plus. Rental rates on housing continue to rise but appear to have plateaued in May and June. We are seeing some markets, namely, Tallahassee, Anchorage, Honolulu, San Diego and Syracuse that are experiencing slight declines in rental rates. Something to watch for the Fall, will there be an expansion of this list or are these just one offs?
Defense spending contracted significantly in the first quarter. Nothing in any report reflects that defense or government spending is changing. If this segment of the economy dips in the second quarter, based on all the other numbers, including our weak exports, we are very likely in a recession.
Have a great week.
