This Week’s Economic Update, April 1, 2024

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Last Thursday was the official start of Spring with the beginning of the 2024 Major League Baseball Season.  Hope springs eternal for every baseball fan, even the A’s, who were only 1 game behind first place after one game.  There is still a chance!  Well, it is April Fools Day, so, nah, they really don’t.  That might be the closest they come to first place all year.

There are some things in the numbers this week that are difficult to reconcile without a bit of explanation.  The overall economic activity continues to be strong.  The fourth quarter of last year produced a level of 3.4%.  From every indication, 2024 is starting out at least that good.  The durable goods orders remain above expectations.  The February durable goods orders overall grew by 1.4%.  This was after the Boeing incident which was supposed to put a crimp in the numbers.  When you pull out defense orders, the number was even stronger at 2.2%.  You would expect that the manufacturing numbers would be improving.

However, the February ISM number shared earlier in March reflected a contraction.  The March Federal Reserve Manufacturing numbers continue to show manufacturing contracting.  The Dallas Fed came in at -14.  The Richmond Fed number was -11. The Kansas Fed reported a -9.  So how can these divergent numbers exist at the same time?

The durable goods as well as economic growth results are in nominal numbers, not adjusted for inflation.  The manufacturing reports measure actual unit output.  In essence the level of inflation is reflecting higher numbers with lower actual output.  Until the inflation level subsides and new hard good orders begin to rise with new business investment, and the new housing construction returns to pre pandemic levels, our manufacturing numbers are going to languish.

The demise of the Francis Scott Key bridge will negatively impact the economy in the short term.  Logistics managers are trying to find ports that have excess capacity as well as the ability to move product that comes in, out to the final destination.  The Baltimore Port specialized in import and export of vehicles among other products.  The first impact are the ships that were either loading or unloading in the port that are locked in until the narrow passage is opened.  Any ship on the ocean headed to Baltimore is now trying to find a new home with a port that has the equipment to be able to unload certain cargo types.  Even when the passage is open, any ship containing any type of hazardous cargo will have to find another destination.  The bridge was the only way to move hazardous material out of the port, they are not allowed to be trucked through the tunnels that move the other traffic. 

There are dominos that were also pushed over as the bridge fell.  Chicago is a main feeder and receipiant of cargo to and from Baltimore.  Until the path to the port is open, ships are starting to pile up at the Chicago and other Great Lakes ports.  The other domino is the shifting of cargo to other ports to unload.  This includes New York, Newark, Norfolk and Savannah just to name a few.  Each of these ports only have so many chassis to remove cargo from the port and end users.  Who now pays for inventory that was ordered to be dropped off in Baltimore that will end up in Savannah Georgia?  The alternative ports already indicate that there is not enough road transports available to move the freight.  For the coming months we will see log jams throughout the east coast for product.

On a personal note, my grandmother and her family in 1913 came through the Port of Baltimore when they immigrated from Germany.   

Have a wonderful week.

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