This Weeks Economic Update, February 15, 2021

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In the Summer on a super hot day, over 100 degrees, we would take a piece of tin and lay it on the sidewalk in the sun for a while.  We would abscond with one of our mom’s chicken eggs and fry it on the tin.  Cheap fun to make us recognize just how hot it was.  When the temps drop to 25 below with a wind chill close to 40 below, we would take boiling water and toss it in the air to watch it vaporize before it hits the ground.  We felt this was a good test to excuse us from any outside activity like shoveling snow or going to school. Of course, hockey and sledding were still on.

Inflation continues to be controlled but is rising.  Consumer prices rose in January by .3% on average.  The issue with the current inflation level is how varied it is.  Gasoline prices rose over 7% in the past month primarily on rumors not fact.  Supply continues to be adequate to meet demand at this time.  Other energy items, electricity and natural gas, declined in spite of the winter demand.  This could change a bit this week as the bitter cold shut down both oil rigs and refineries across the South. Food prices continue to rise as shortages in some areas exist more due to transport and supply chain issues and not actual supply. 

Outside of the consumer basket that is used for the consumer inflation rate, inflation is evident in specific areas.  Housing prices for new construction have risen by over 8% nationwide over the past year.  Existing house sales are up over 13% in the past year.  Used car prices also had risen through October of last year by 15%.  They have moderated since then, dropping an average of 3%.  That still accounts for a 12% increase in the past year.  Buying into the stock market?  In spite of a drop in stock prices in March of 2020, year over year the price of stocks have risen by just over 8% on average.  Soy beans, which are used in about everything in one way or another are up 51% in the last 12 months.  While inflation is lurking in certain areas it is controlled for now.  This could change if the pent up demand of the consumer is unleashed.

In all prior recessions, the consumer came out of them with less money than they went in.  Job losses, wage freezes, and layoffs all negatively impact the population during a recession.  The recession of 2020 was the first where consumers exited the recession with more money than less.  This was partly due to the targeted job loss in lower wage positions that occurred.  Hospitality, food service, and arts & entertainment were decimated.  These areas account for most lower wage positions.  The majority of workers kept their jobs, in some cases adding income due to overtime or other wage increases.  Add the stimulus checks, which again, most recipient’s saved and did not spend, produced more liquidity for most families.  This liquidity, plus the pending stimulus, should put a nice charge into the economy, boosting the second and third quarter of this year.

Bricks and mortar retail continues to be pummeled.  The Redbook for January/February was down 2.5% following a previous reading of down 1.6%.  Between covid fears and online rivals, in person retail is suffering badly.  The Redbook report measures the growth or decline in sales on same store sales over a specific period.   While the first quarter of the year is typically slow, many retailers have limited reserves from a slow Christmas to rely on.  2021 has already seen the following larger retailers file bankruptcy, Loves Furniture, Christopher and Banks and Commemorative Brands.  This portends poorly for commercial real estate in 2021.

Please note I will be presenting Troubled Loan and Credit Management on February 22, 2021 via zoom. If interested please register at https://www.icba.org/events/calendar-of-events/events-calendar-details-page/2021/02/22/community-banker-university-calendar/troubled-loans-and-credit-management-information.

Have a great week.

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