This Week’s Economic Update, January 15, 2024

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Winter finally came to Minnesota this week.  We missed Christmas last month as the weather was more like September/October, raining and warm.  We had repeated ice floes that broke loose on the lakes due to the warm weather.  This stranded a number of people who were ice fishing on the lakes.  Hopefully we will have a normal end of Winter, which hopefully will be in March.  Two months of Winter is something all of us can handle.

The start of the New Year appears to be picking up where the last year left off, at least with the labor market.  New job creation continues to be sufficient.  Continuing jobless claims declined again indicating those without jobs are being picked up quickly by new employers.

While there may be a place for electric vehicles, it appears that they are not near main stream yet.  I know I California there are ample recharging stations and they are great for commuters, shorter trips.  In September I was provided a ride in a Tesla.  I have to say, the launch acceleration was breath taking.  I have been in a 1968 Charger with the original Hemi.  The Tesla beat the Charger, hands down for acceleration from a standing start.  In time EV’s will evolve to become more acceptable and useful.  For  now a number of companies that had invested heavily in the adaptation to electric cars are pulling back.

Hertz announced this past week that they are going to sell off 1/3 of its Tesla cars in its fleet.  This amounts to about 20,000 vehicles that will hit the used market.  It also means that the 50,000 Tesla’s that Hertz was planning to purchase in the next year are on hold.  Because Hertz is selling the cars prematurely and at a depressed used car market price, they will be writing off an estimated $254 million related to the loss on the vehicles.  Hertz found that the cars were not as popular with the rental clients as expected.  The vehicles had higher maintenance expense, particularly in wearing out tires and brakes.  The tires, because of the torque and acceleration which wore the tires faster.  The brakes also wore faster as the cars are heavier, making them harder to stop.  Sadly, between the speed that the renters drove in the cars as well as the inexperience in recognizing how long the stopping distance was in the Tesla’s, the cars were involved in many more accidents which did greater damage then in normal vehicles. Overall, Hertz is slowing the conversion to EV’s.  In time they may reinvest, but it could be some time.

China made news this past week when it announced that its annual exports fell in 2023 for the first time in seven years.  The drop of 4.6% was a surprise.  The US remains the largest trading partner with China.  However, demand for Chinese products in the US is falling.  People are being more selective in their purchases.  There is no indication that global politics issues are involved or that the pressure that China is putting on Taiwan is influencing buying decisions, yet.  Overall, the world is looking to on shore production of many products to stabilize their supply chains.  No one wants a repeat of the last few years.  This is decreasing the demand for Chinese products, leaving a significant crimp in the Chinese economy. 

The oil market continues to soften with ample supplies of crude oil, refined gasoline and distillates.  The news above about the Chinese economy softening ties into the oil market.  The Chinese recently cut oil and refined product orders from Saudi Arabia due to their weak economy.  The only thing keeping gasoline prices up right now are the troubles in the shipping through the Red Sea.   

The banking industry is starting to see a major shift.  The larger money center banks are quickly reassessing the branch structure as well as the level of staffing needed across the board.  In the first half of 2024 we could see up to 75,000 job cuts in the industry.  Regional banks will also be impacted as loan demand has softened in the most lucrative markets in the past, mainly real estate lending.  Between remote working, funding issues, lower financing requests and a possible slow down in the economy, banks will be retrenching this Spring.

Have a great week.

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