This Week’s Economic Update, April 8, 2024

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If you have attended one of my classes you know I aways start by talking about my horse Moon.  Our family had Moon for 10 years before donating her to a wonderful organization, Freedom Farm in Waverly, MN. There she worked with students with emotional and behavioral issues along with returning veterans with PTSD.  Sadly, this past week age caught up with Moon.  We were able to say our good-byes to Moon last Thursday, she left us on Friday.  She left a wonderful mark not only on us, but many of the students at Freedom Farm.  They and us will greatly miss her.  Happy Trails Moon.

The economy continues to resist any type of soft landing or weakness.  Since October of 2022 the manufacturing sector had been in contraction.  That ended in March.  The ISM manufacturing report reflected a growth in manufacturing, in spite of head winds from Boeing.  The move from 47.8 in February to 50.3 in March was not expected.  While the level is not much above the break even of 50, the jump of 2.5 is the headliner here.  The report indicates that there is plenty of optimism related to the forward looking numbers.  New orders are very strong, backlogs are dropping.  Most of the respondents commented on demand either being strong or continuing to grow.  The second quarter, in particular is looking exceptionally good.  The only cloud in the silver lining appears to be in aerospace which, with the Boeing issues is not unexpected.

The industries that grew in manufacturing during the first quarter were textiles, non-metallic mineral products, paper, petroleum, primary metals and fabricated metals.  Areas of weakness included furniture, plastics and computer products. 

The ISM Service report was a bit soft, but still in the expansion range.  The overall survey number came in slightly below the February number at 51.4.  However, the overall activity increased from 57.2 to 57.4 which, reflects continued strength in services.  Surprisingly, some of the most positive comments are coming from the industrial construction services sector where demand remains strong in spite of high interest rates.  Retail supply chains appear to be fully back to pre pandemic conditions.  This is reflected in a number of areas where disinflation is continuing.  As with the manufacturing report, services are also seeing a decline in the back logs but strong growth in new orders.  This indicates that the hiring and production levels are balanced.

We had an abundance of labor numbers last week.  All of them pointed to a stable to strong labor market.  The JOLTS job cuts in March were on par with expectations and just a bit above February numbers.  The majority of the cuts came from technology companies and the government.  The government cuts came from the VA and the Army.  The JOLTS job quits appear to have balanced out at 3.4 million.  This is pretty much on par with the pre-pandemic level.  Workers feel confident that they can replace the job they have and are still willing to quit as they see fit.

Initial jobless claims at 221,000 remain at a fairly average level in the post pandemic era.  New non-farm payrolls grew by 303,000 in March.  This was on top of an upward revision of 22,000 between January and February.  Areas of the highest growth were health care, hospitals and government.  Local governments added the most at 49,000.  Leisure and hospitality also continued to add jobs.  The areas that added a few jobs included manufacturing, mining, oil and gas along with finance. 

What was very interesting in the Bureau of Labor Statistics was the level of part time employment, it remained unchanged from February.  This was supported by the uptick in average hours worked which grew from 33.6 in January, 33.8 in February to 33.9 in March.  Average earnings continue to rise taking a .35% increase on an hourly basis during March.  As this is higher than the inflation rate, it will contribute to a continued upward wage-price spiral. 

Speculation on the magnitude and timing of interest rate decreases, to me, is missing the mark.  The economy is responding to both the moves from the Federal Reserve on rates as well as the massive amount of fiscal spending.  At this moment, the fiscal spending is far outstripping the power of the rate increases to soften the economy.  If you want lower rates, it will only come from less spending and borrowing from our government.  Until that happens, a rate decrease by the Fed will only ignite a new round of inflation.

Have a great week.

Moon Profile



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