This Week’s Economic Update, December 13, 2021

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The lead up to Christmas was always nerve racking.  Had I been good enough to catch Santa’s eye so he would get me what I really wanted?  That Harmon Killebrew signed baseball bat?  The Motorific set with all the cool cars and track?  The Foto-Electric Football game, the Daisy BB Gun, the Johnny Lightning Cars, Hot Wheels Sets, oh the list went on.  Funny, I never remember requesting a book for Christmas, or socks, or clothes of any kind for that matter.  In spite of all those toys, the best Christmas present I ever received was when I was an adult and it came from my mother-in-law.  It came on a Christmas where my grandfather had just passed away, a tough time.  She had found a head vase with advertising revealing that it had originally come from the Monroe Appliance Shop in Foley MN, owned by my Great Uncle and part of my family history.  It meant so much to see that head vase.  It really made all those toys that I wanted so badly and lasted only weeks, fade away.  Hopefully you can remember a special gift that you either gave or received and it will bring back warm memories of Christmas past.

There are two times during the year where worker productivity drops to incredible lows.  During March Madness when the NCAA tournament is in full force, workers are distracted, clearly invested in their bracket performance.  The other period is the last week of the year, between Christmas and New Year’s.  I always thought this week was kind of a “No-man’s “, growing up.  There was no school, most businesses were completing year end inventory, people were traveling or just worn out from Christmas shopping. 

These two reasons did not apply to a third quarter productivity report that was the worst number since the second quarter of 1960.  Output increased a paltry 1.8% while hours worked jumped 7.4% during the quarter.  Non-farm productivity fell by 5.2%.  At the same time unit labor costs increased 9.6%.  Both exasperate the inflation levels we are currently experiencing.  This is related to the decline in the weekly jobless claims.  The third quarter jobless claims peaked in early July and had fallen through the quarter.  Employers are reluctant to lay off or let employees go right now.  Firms are keeping staff and finding work, even unproductive work, for them to do.  The key is not losing staff because it is so hard to replace them.  Until the labor market loosens up, as well as the supply chain smoothing out, we will see productivity to languish. 

The inflation report on Friday neared a peak for the year so far.  The monthly inflation rate in the US came in at .8% for November.  Gasoline rose 6.1% during the month.  This was before the release by the President of the strategic oil reserve amounts.  While that release may have stemmed the price rise in energy, gas prices nationwide have not declined much.  This move was seen as a short-term gap measure by the market, doing nothing about the long-term trends.  Shelter expenses were up .5%, food up .7% while vehicle sales prices rose 2.5%, if you could find the model you wanted. 

Do not be misled by the number of ships at anchor on the West Coast.  This last week the ports of Los Angeles and Long Beach indicated that 34 ships were waiting to be unloaded.  This was a drop from 70 plus from October.  What they are not saying is that they are limiting the number of ships at anchor after one hooked an undersea pipeline, causing the oil spill in October.  How is the port doing this?  They have informed the shipping companies to slow down the ships as they travel across the Pacific.  When you consider all the ships lined up that are moving slower, the number is now above 90.  Not much of a solution. 

The ISM Service report for November 2021 was off the charts good.  The service number came in at an all-time high of 69.1%.  This extremely hot growth is across the spectrum in health care, retail, consumer services such as heating, cooling, remodeling, professional services, wholesale trade, warehousing, entertainment, finance and education.  No industries related to this report experienced a contraction.  So is the economy really doing this well?  Yes, with an explanation.  If you recall, the third quarter had a soft spot in August, but September numbers started improving.  The reports since the end of the third quarter have all been highly positive.  The consumer continues to spend at ever increasing rates, in spite of the levels of inflation.  The pandemic stimulus funds that families received, including the child tax credit funds, have sparked a buying spree that we have not seen in nearly a generation.  The depository levels in banks remain high, indicating that consumers have the funds to spend and are trying to do so in spite of supply chain issues.  Based on the bleed rate of the deposit levels, spending is expected to continue through most of the first quarter of 2022. 

With less than two weeks to Christmas, I trust you have been able to find the perfect gift for that special person.  Me, I put up an extra-large tree this year so Santa can leave a 1966 Thunderbird with a 428 ci Engine under it.  Have a great week.



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