This Week’s Economic Update, April 15, 2024

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April showers bring Mayflowers, which is odd since we celebrate Thanksgiving in November.  All kidding aside, it is time to get out and prep the gardens for the coming beauty.  My wife is actively scouring the local nurseries to get a head start on the flowers she wants.  Of course, they will stay in the garage until mid to late May to assure they are not nipped by a late frost.  On that note, we still have not had a thunderstorm yet this year, so at least in Minnesota, according to my grandfather and the Farmers Almanac, the first frost should not be until mid October.  We will see.

The inflation numbers came in higher than expected.  Not sure who is setting the expectations, this was not a surprise to anyone balancing a family budget.  Digging into the numbers, hot points were energy, including gasoline which rose at 1.7% in March alone.   This was in response more to global tensions and not supply and demand.  Sadly, this is not going to abate anytime soon.  Food inflation was rather mixed.  Meats, poultry and fish rose .9% in March.  This was primarily related to the Bird Flu outbreak that is requiring the slaughter of millions of birds.  Service sector inflation rose .5% in March based on insurance costs. 

Eating out is becoming more and more traumatic.  This is partly due to food costs, but more related to wages increasing for fast food workers.  I worked at McDonalds in the 1970’s.  My starting wage was $2.20 an hour.  Even then, that was not a pay level that could buy much.  However, fast food and other like positions were never meant to support a family or even an independent person.  It was strictly a transitory job while you were in school or otherwise prepping for your next phase in life.  Somewhere that changed and now we seem to consider flipping hamburgers equal to other more trained positions.  Sadly, if that expectation continues, the business model for convenient fast food will become unsustainable.

The shelter segment of the inflation report is truly frightening.  In the past year housing, either renting or owning, now costs 5.7% more than 12 months ago.  The impact of higher interest rates, higher property taxes, insurance costs, as well as limited supplies driving up prices for both rent and purchases, are putting a strain on everyone’s budget.

The Producer Price Index on Thursday came in at .2%, an annual rate of 2.4%.  There were some commodities that fell in price which softened the number somewhat.  However, there is a broadening number of commodities that are increasing in price which will continue to push inflation higher in the coming months. 

The US Economy continues to build. Part of this is based on ever increasing levels of debt, both public and private.  On the private side, credit card debt continues to climb to new highs.  Term debt is also growing which is fueling demand for more and more production in manufacturing.  We also have to consider the influx of undocumented immigrants into the US.  Since the beginning of 2021 the Federation for American Immigration Reform has counted 7,924,245 new comers into the US through the Southern border.  Each of these people need a place to live, a job, and have to spend money on bare necessities and beyond.  However you look at it, 8,000,000 new residents will impact your economy when it comes to spending.

When you consider the strength of the labor market, with nearly 9,000,000 open jobs, an expanding buying population, inflation continuing to be “sticky high”, as well as the level of fiscal spending stimulating the economy, it is hard to justify how the Federal Reserve could possibly consider reducing interest rates this year.  In any event, just the level of government debt that is put out every week will keep long terms rates high for quite some time.

Have a great week.

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