This Week’s Economic Update, December 11, 2023

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The days are flying by, just two weeks of Christmas shopping left and three weeks until we close the books on 2023.  I trust it was a good year for you, your families and your firms.  Next week, December 18, will be my last update for the year.  I will be back on January 8, 2024. 

The economic reports over the last couple of weeks show a continuing softening of the economy.  The Manufacturing sector has been in contraction since October of 2022.  Other areas are now reflecting a plateauing of growth or a contraction.  The reasons for the easing in the economy are likely a combination of factors.  The first Fed rate increase was in March of 2022.  Typically, rate increases have a lagged impact on business.  In the past it has taken about 18 months for the fruits of increased interest rates to show up.  The liquidity that was pumped into the system from the various stimulus programs during the pandemic have bled off to below trend line levels that existed prior to 2019.  The growth in consumer expenditures, excluding food and energy, has fallen from the peak of 6% in mid-2022 to 2% now.

The LMI Logistics Managers Index was the latest indicator that fell into a contraction level. After bouncing into a strong expansion area earlier this year, the index dropped by a significant amount, from 56 down to 49.  A rapid decline in inventories on hand during the last month prompted part of the contraction.  Warehouse utilization fell by 14 and transportation by 10.7.  Firms are taking advantage of the early holiday sales, however it is clear, they are not interested in ordering new inventory.  This aligns with the manufacturing report comments from November where new orders continue to fall even though inventory levels are considered too low.

The jobs report this week reflects another point of softness.  It was not long-ago employers nationwide had openings close to 11 million.  That number is now down to 8.7 million.  At the same time a number of larger firms are announcing upcoming layoffs, including Wells Fargo.  The Challenger Job Cuts report for November indicated an increase of 45,000 on top of the October level of 36,000.  The pace of job cuts is definitely increasing.  The retail sector appears to be leading the job cut numbers which is odd based on the Christmas season.  Tech and financial firms, including banks, are the next two industries shedding jobs.

The initial jobless claims have appeared to have leveled out in the 210 to 220 level per week.  Continuing jobless claims also appear to have plateaued over the past two months.  This indicates that those who have been laid off are finding work.  We will have to see how long that lasts based on the decline in open positions.

The growth in consumer debt has been softening since the beginning of 2022.  It is now below the growth levels that existed prior to the pandemic.  The numbers here are interesting when you consider the housing market and how high purchase prices are.  Further, the prices of both new and used vehicles are much higher than they were prior to 2020.  The softening in the growth of debt is a clear indicator that more and more consumers on sitting on the side lines.

With the price of oil hovering at $70 a barrel, the administration has initiated solicitations to purchase as much as 3 million barrels of oil for delivery in March.  Based on the current inventory levels, that amount is woefully inadequate.  The current level is 351 million barrels.  At full capacity, the level would be 714 million barrels.  On July 10, 2020 the reserve peaked at 656 million barrels.  As recently as December of 2021, just two years ago, the level was over 600 million barrels.  Based on the current buyback level, the government would not build the reserve back to 600 million barrels until 2030. 

Have a great week.

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