This Week’s Economic Update April 22, 2024

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The 2024 baseball season began barely 21 days ago.  We still have roughly 166 days until the end of the season.  Sadly, I have to call two teams out of playoff contention.  Surprisingly, the Athletics are not one of them.  They are surprising everyone with an 8 win 14 loss record that puts them only 3 games out of the American League West.  The Chicago White Sox with an incredible 3 wins and 18 losses along with the Marlins at 6 wins and 17 losses both fall beneath the bar of being 10 games behind first place as well as 10 games under 500.  The Rockies are right there with them at 4 wins and 16 losses, but being in a struggling National League West, they are only 6.5 games back.  Going to be a long season for these three teams.

The consumer continues to be resilient.  Retail sales in virtually every category in March were strong.  When you pull out auto sales, total retail sales were at 1.1%.  All in, retail sales were up .7%.  In looking at the money supply, there continues to be plenty of liquidity in the market.  Wages have continued to climb giving spenders the ability to buy, even as inflation rises.  Between using personal liquidity and credit cards, there does not seem to be any strong indication that spending might flag in the next 6 months.  That could change, particularly with the amount of debt that exists.  Consumers could cut back quickly if they become concerned about their personal debt levels.  Again, that does not seem to be happening.

Industrial production remains stable.  The growth in March matched February at .4%.  Capacity utilization in manufacturing has now reached 78.4%.  Any number over 81% requires firms to begin investing in new equipment.  We have some runway before that occurs.  However, efficiency has to be considered.  Finding qualified workers is still a problem, the labor market remains very tight.  With the level of demand that exists, firms may begin purchasing new equipment to be able to maintain acceptable inventory levels.  Right now, with the reports that have been released, we should see a second month in a row of expansion in the manufacturing sector.

For bankers, the growth in manufacturing should provide some wonderful opportunities.  Since the fall of 2022 manufacturing firms have, for the most part, seen sales slide.  This allowed them to collect their receivables, constrain inventory and reduce their debt.  As sales begin to rebound, they will finally need to lean into their lines of credit to buy inventory and finance the accounts receivable.  Work with your clients now, follow up with prior prospects that might need a good banker who understands operating companies and work to solve their liquidity problems.

Between the strong job market, retail sales and manufacturing expanding, there is little in the way of expecting inflation to abate.  The government’s massive levels of spending along with the need to borrow continue to send long term rates higher.  After falling to 3.78% at Christmas, the 10 year rate is now up to 4.62%, not far from the 4.9% high last October.  None of this is helping the housing industry which saw new sales and applications fall again this past week.  Prices continue to be too high for many in the middle class to afford.  Higher interest rates compound the affordability issue.  Sadly, not much in the cards to see any turnaround here.

The durable goods orders coming out this week will be interesting to see.  Once again, the issues at Boeing will have to be adjusted for.  Overall, the numbers should be a bit above February levels.  The key indicator to look for will be business re-investment.  That will be a clear indicator if firms are optimistic about the future.

Have a great week

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