This Week’s Economic Update, April 29, 2024

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The reports released this past week for the first quarter appear to be a rather mixed bag.  There has started to be a lot of talk about stagflation, reminiscent of the 1970s.  The concern is we are entering a season of low to moderate economic growth and persistent inflation.  That period was marked with oil supply shocks caused by OPEC which ignited the inflation beast.  It was compounded by the fiscal spending hangovers of the Vietnam War and the War on Poverty.  The Federal Reserve maintained a loose monetary policy for far too long.  Lastly, union labor pushed for wage increases that created a wage price spiral.  While the ignition point is different this time, the remaining variables all feel way too familiar. 

We got our first look at the GDP numbers for the first quarter of 2024.  The 1.6% growth was below the fourth quarter 2023 of 3.4%.  While softer than the end of 2023, you really need to dig behind the numbers to see what is going on.  The consumer is shifting their spending, moving away from goods and more heavily into services.  These are real numbers so they are adjusted for inflation.  Spending on larger ticket items, vehicles, energy and retail construction material declined as consumers instead focused more on services in the first quarter.  Key increases in purchases came from health care, financial services.  Service sector spending has less of a dynamic effect on the economy, fewer ripple effects to echo through.

There were some other head winds in spending in the first quarter that have to be addressed.  Not all the information points to a systemic weakness, rather more of a pause or breather in the economy.  First, the strong dollar curtailed exports while at the same time juiced our imports.  Imports have no effect and are not counted in GDP.  Spending this last quarter on imports included both hard goods and services, which increased from the fourth quarter.

The second item of note was businesses drawing down on inventories.  This occurred primarily in January and February with only a slight up tick in March.  Since the inventory production was reflective in the fourth quarter of 2023, we essentially coasted during the first quarter.  It is hoped that inventories will reach a point where production will be essential in the second quarter.

Lastly, we saw a deceleration in spending by state, local and federal governments.  This was most likely impacted by seasonal expenditures.  Something to watch for in the second and third quarter.

Disposable personal income moved to 4.5, up from 3.1 in quarter three and 3.8 in quarter four. Typically raises are given in January so historically this number is boosted a bit.  Core personal consumption prices rose at 3.4% so the consumer experienced a nice improvement in the first quarter.

Durable goods orders in March climbed 2.6%.  The primary driver here was transport equipment which was up 7.7%.  This was driven by civilian aircraft which was up 30% from February.  Sadly, the numbers for business spending pushed out a meager .2%.  In February this number was .4%.  This is a sign that firms have sufficient capacity and are not too optimistic about the future. 

The April manufacturing performance is soft.  The Richmond Fed numbers came in at a -7, better than the -11 in March, but still in contraction mode.  The Kansas Fed Manufacturing Index fell to -13 from the level in March of -9.  It does not appear that the inventory replenishment we saw in March is continuing.

The jobs report this week continues to show strength in new hiring as well as in limited job losses.  Those who are laid off are finding jobs quickly as shown by the continuing jobless claims. 

Next week we have the Dallas Fed numbers along with the ISM reports due.



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