This Week’s Economic Update, December 12, 2022

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Not to stress you out, but there are only 13 more days until Christmas.  How is that shopping going?  The stores I visited recently appear well stocked and ready for shoppers.  Unless there is a change of heart from what I have been reading, many are saying they will be spending less this year at Christmas.  That should help those last minute, late shoppers who traditionally scramble in deciding what to buy.

As the pandemic took hold, we became aware of just how tenuous our supply chain was.  Further, most did not realize just how dependent we were on our trading partners.  Beyond the concentration of business that was done with China, we were also unaware of the logistics issues of shipping goods worldwide.  That all came to a head in 2020, and continues to plague us here as we enter 2023.

A report by CNBC last week indicates that we have learned our lesson about over reliance on foreign trading partners.  US orders for Chinese manufactured goods have fallen 40% since September of this year.  While it has taken some time, more US companies are re-sourcing goods to more stable and closer partners.  During the same time, orders from Europe have increased by 20% with the remaining orders being re-shored in the US domestically.  Because production has been so un-reliable from China due to repeated shut downs, the drop in orders is not wholly unexpected.

A ripple effect from the shift in trade is the impact on shipping. Shipping companies working in the Pacific are seeing demand plummet.  Ironically, this is only going to exasperate the supply chain for the remaining orders from China.  Shipping companies are loath to send a cargo ship out of port that is not fully loaded.  The drop in orders is resulting in cancelled sailings as well as delayed departures until the ships are fully loaded with containers.  The issues will be compounded as China typically shuts down for most of January due to the Chinese Lunar New Year celebration.  Fewer orders as well as declining production will delay goods coming from China into February at this time.

The service sector in the US continues to be strong.  The ISM November report grew from 54.4 to 56.5. Business activity soared from 55.7 to 64.7, a post pandemic high.  Of the 14 industries covered in the report, only Finance and Insurance experienced a decline in activity. Every sub index in the report reflected a positive change with comments from business owners being very optimistic. It was noted in the report that the supply chain issues that most industries have struggled with have or are abating. As the service sector is one of the largest impacting the economy, this is a good sign.

After three months of tepid, even negative factory orders, the October report, pulling out transportation, showed a growth of .8%.  While not a rip roaring, jump for joy number, it is a break from the July through August numbers which were primarily negative.

An area in the economy that will have the largest impact on inflation is the level of productivity.  If firms are more productive, getting the most of their fixed asset and human resources, the savings can be passed on to the consumer or the owners of the firm.  As orders rose, work hours increased slightly and hiring began to level out, the third quarter produced a rise in productivity of .8%.  Again, not gang busters, but better than the negative growth over the prior three quarters, dating back to September of 2021.  Between bringing workers back into the office, supply chain disruptions easing and firms possibly finding better trained workers to fill open positions, it is hoped that the productivity in the US will continue to improve.

During 2022, initial jobless claims have begun to taper at a number just barely above the pre-pandemic levels.  After being sky high for 2020 and early 2021, the current numbers in the 230,000 range per week reflect a return to a normal job market.  The levels have remained low for 2022 leading most to believe we are at a parity level.  An indication that we are nearing a recession would be to see an upward trend in this area.

The Michigan Consumer Expectations number jumped in the past month indicating that times are considered good to many consumers.  This may seem contradictory based on the continued inflation numbers, increases in consumer debt and tales of shrinking personal budgets.  For those that are gainfully employed, are well trained and have invested in themselves to make them marketable to employers, their wages have increased and they still appear to be spending. 

Have a great week, just two more weeks to Christmas



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