This Week’s Economic Update, February 27, 2023

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Obviously, I am a big proponent of training.  The best investment you or your bank can make is to expand your knowledge base with good training.  ICBA is offering two wonderful classes in March/April that you will want to consider.  The Credit Analyst Institute will be offered virtually starting on March 28, 2023.  This three day session is a great way to understand how to manage credit risk as you assess a new prospect or existing client’s requests.  You will also get a great primer on legal landmines and exposures that you might want to avoid.  Starting on April 4 is the ICBA Commercial Lending Institute.  Again, a great offering that will build strong banking relationships with your clients, understanding how to structure, negotiate and build a good quality portfolio.  Both courses earn certifications that can boost your career and assist your bank.  You can find out more about how to register at ICBA.Org. 

Last week I shared how the Fed is likely behind the curve with raising interest rates.  This past week a number of reports that came out indicate that the economy is humming along at a very fast rate.  With the amount of demand, consumer spending and overall growth, it will be impossible for the Fed to curtail inflation without a much more aggressive stance on interest rates.

The only area of the economy that seems to have been impacted so far by increased rates is the housing market.  Even in that area, the softness may be at the bottom.  In January there were 4 million existing homes sold in the US. This is a post pandemic low for one month, but not that far off from December which was at 4.03 million.  This was likely the result of a leveling off of mortgage interest rates last month.  As rates begin to climb again, this would likely continue to be the market to watch decline. Interestingly, new building permits and new home sales rose nicely in January.  This is likely an indication that existing home prices continue to be too high for most purchasers who appear to be able to purchase a more affordable option in going new.

The job market shows no sign of cooling off.  From the numbers, it appears that those who are laid off are quickly hired by firms that are growing and need help.  Or at least are being hired by companies that are “hoarding talent”.  The level of continuing jobless claims dropped by 37,000 in the last week.  The new hires appear to also be getting a bump in income.  Personal income rose by .6% which was about the level of inflation last month.  Both of these numbers clearly reflect a labor shortage in the market.  It also indicates that companies feel comfortable enough to increase spending on labor, showing an optimism in the future.

During the last week inventory levels of heating oil, gasoline and distillates all increased nicely.  Overall crude oil stocks increased by 7.6 million barrels.  This was half of last week which was 16 million.  This was in spite of a continued decline in crude oil imports for the third week in a row.  The US appears to be hoarding energy stocks, building a nice reserve in the market.  At the same time, the oil rig count continues to fall which is a concern down the road.  At this time, it appears that the oil rig level peaked in November of 2022 and is reflecting a steady decline.  The peak was 783 and we are now down to 753.  The production numbers and supply levels possibly point to lower demand in all three areas, distillates, heating oil and gasoline.  The fears of critical shortages of fuel oil this winter seems to have abated.

One last indicator that the economy is not nearing a recession and inflation will continue to be with us.  The Michigan Consumer Expectation level hit 64.7 in February.  The report suggests that the consumer is getting more optimistic about the future.  The level in July last year was 47.3 and has been climbing or stable since.  The average from 2014 to the pandemic was about 85, so we are well beneath normal.  The key is that the consumer appears to believe the future is good and is likely to continue to spend.  We will have to see what will eventually burst this bubble, higher interest rates, higher inflation or both.

Have a good week.



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