This Week’s Economic Update, December 4, 2023

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The NCAA Football Conference Championships are done, the bowl schedule is being finalized.  Two hot shot teams that seemed to suck up all the preseason media kind of flamed out.  USC was supposed to be in the playoffs, win the PAC 12 and produce a walk away Heisman Trophy winner.  They ended 7th in the conference and out of the top 25.  Of course, as the Heisman goes, most of the comments relate to Caleb Who?  On to the Colorado Buffaloes.  Remember when Prime was turning water into wine and walking on water?  The bubble burst in October and in the end they once again finished last in the PAC 12.  These two teams ended the season with losing streaks.  USC dropped three in a row and Colorado 6 in a row.  Ouch.

The ISM Manufacturing report was not good.  After seeing the Federal Reserve Regional Manufacturing numbers from November, the continuing contraction in manufacturing was not a surprise.  While the index remained static from October, behind the numbers there is concern.  New orders continue to contract and production fell after it had expanded in October.  Employment is falling, dropping to 45.8 which is at its lowest level since the pandemic. For the first time since before the pandemic, customer inventories are considered too high.  The backlog of orders is also falling faster than expected. 

Respondents in the report seem uniform in their comments that the economy is slowing, customers are delaying purchases and inventory levels need to be reduced.  Throughout the numbers it is clear that manufacturing will continue to contract.  There is nothing in the related reports, such as the durable goods and consumer spending that would reflect a positive outlook through the first or second quarter of 2024.

We are seeing the early signs of a weakening labor market.  This has been talked about for nearly two years but has seemed to be elusive.  Up until the end of the third quarter jobless claims both new and continuing were stable.  While we are not at the peak of new jobless claims that was hit in July, levels are trending upwards since the end of September.  Since the second week in September the continuing unemployment claims have been climbing steadily.  The number has surpassed the April peak and is currently at the highest level since the end of the pandemic.  It is clearly taking longer for those who are unemployed to find a replacement position.  The level of self relocations, people leaving their current job and moving to a new position has crashed from 2021 and early 2022.  More and more workers are concerned about the future and are not willing to take the risk of moving to a new company where they might be the first cut if the economy softens.

Consumer debt to disposable income is a key indicator of how stressed our consumers are.  This ratio hit a low in 2012, eleven years ago, at 4.9%.  Since 2012 this level rose at a steady level, hitting 5.7% at the end of 2019, on the cusp of the pandemic.  Consumer debt to income fell during the pandemic due to all the stimulus funds that were disbursed.  As expected, the US consumer can not stop spending until their savings are gone and debt levels rise.  This happened in September as the level of consumer debt to disposable income rose to 5.9%.  Essentially, you can draw a line from 2019 to today and find the bridging slope of that line to be exactly the same as 2012 to 2019.  A clear indication that we are a consumption spending-oriented population that even given a leg up to pay off our bills, we will go right back to living paycheck to paycheck so we can have stuff.  While inflation has its impact, it appears the issue is more related to behavior.

OPEC announced voluntary production cuts this week.  With supplies of crude oil, gasoline and diesel piling up, we will see if anyone actually reduces output.  Gasoline prices are already under $3.00 per gallon in the midsection of the nation.  Nothing in the levels of demand indicate that prices will be adjusting upward unless the voluntary production levels are actually adhered to.

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Have a Great Week.

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