There is a lot to discuss this week, so I will be jumping right in.
Last week the New York and Philadelphia Fed reports related to manufacturing were well below any expectations. This week the Richmond and Kansas Fed provided under performing numbers for manufacturing firms in their regions. The Richmond index fell from -11 to -15. The Kansas Fed index moved from -4 to -17 in January. Not a great start to the year for manufacturing. Part of the issue is with inventory replenishment. Buyers are simply not fully restocking their shelves. Shortages of goods are not expected as demand in specific industries is soft right now.
There are limited drivers associated with the health of the manufacturing sector. The automotive, aviation and industrial equipment industries are three of the biggest drivers for production. The fourth is defense spending. Reports from this past week related to the three primary industries listed were not good. Retail inventories were up .8% overall. When you remove transportation the growth in inventories was .6%. It is not uncommon to see full dealership lots right now. From the numbers it is clear that more auto production is not needed. The growth in durable goods, including business equipment orders, came in at 0%, or no growth. Again, if you pulled out transportation, including both aviation and vehicles, the growth number was .6%. Based on the numbers, new orders on virtually everything in the manufacturing sector is suppressed. This week the January ISM Manufacturing report is due. In December the index was 47.4. Based on the numbers this past week, it is likely the ISM will soften to around 47.
This past week there were a number of reports that pushed up oil and stock prices. In looking at the specific reports as well as considering the manufacturing information already discussed, I am not seeing what the markets are interpreting. 2023 ended with a much stronger GDP number than anyone expected. The consumer opened their pocket books for Christmas and really pushed the economy upward. Much of the spending was on services, including travel. The big question, how much umph is left in the consumer? The first quarter typically is soft as families attempt to replenish savings or cover the debts from the prior year end spending.
The economic reports from China reflected an economic growth level that was a surprise. Nothing up to this week suggested that China was doing all that well. A major question from reports from China revolve around accuracy of the numbers. The country is struggling with a massive real estate problem with a number of construction and management firms going broke. Their banking system is in shambles with a large amount of non-performing loans. Their exports have been falling, particularly to the United States. There is nothing that is indicating to me that their economy is strong at all.
On Wednesday the energy reports reflected decreased inventory and production across the board. We still have ample supplies, including gasoline levels. Market players saw the US economic numbers, China’s supposed strength, as well as the reduction in oil stocks, figuring good times were returning. Oil prices jumped nearly $8.00 a barrel. Before I hop on the bus, I will have to see a longer trend in the supply numbers as well as confirm that the US economy is as strong as some think it is.
December was a tough month for layoffs. January has been no better. ResumeBuilder surveyed business leaders earlier this month. 38% of the companies represented indicated they will go through a round of layoffs this year. 50% currently have a hiring freeze in place. The primary concern is an anticipated recession. While that seems contradictory to the interpretation of the markets, a recession does look more likely when you get behind the numbers. So far this year, Google, Meta, Goldman, Citi, Amazon, BlackRock, Nike and Intel have all announced plans to cut staff in 2024. The bump in new unemployment claims this last week might be the start of a rather lengthy trend.
Have a good week.