This Week’s Economic Update, January 3, 2022

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Happy New Year.  With the new year there are always new resolutions.  Here we are on January 3, 2022, how have your new resolutions gone so far?  I had a friend in college who said his new years resolution for the year was not to do anything stupid.  He had broken that by the time we got back to school on January 5 of that year.  The nice thing about resolutions is you really are not limited to starting them on January 1.  The best time to start a new resolution and improve your life is the minute you realize you need a change.  Best of luck with your resolutions.

We are in an era where everything is becoming hyper political.  Sadly, this unnecessarily separates all of us.  When things become political, everyone is forced to take a side which only upsets someone.  The FDIC in the past has been above politics.  They have, for the most part, maintained strategies that have kept banks safe.  As they have audited banks the focus has been on credit as well as specific rules that have been enacted by Congress.  Beyond setting proper standards for key ratios on credit, risk, performance and reserves for banks to maintain, the FDIC has monitored the requirements related to the Community Reinvestment Act, the Patriot Act as well as Beneficial Ownership.  For the most part they have stuck to specific objective standards that are clear and non-political.

In the past year politics has been slipping into the FDIC.  There have been rather public spats between the members of the board of directors.  The FDIC Board normally consists of 5 members.  There is one seat that is currently vacant.  Of the four currently seated, three were appointed by Democrats, and one, Jelena McWilliams, was appointed during the President Trump era.  She was appointed in 2018 to serve a 6 year term. 

In the past year the FDIC has moved to become much more political.  One of the main areas of push has been in assessing banks in their role in climate change.  In particular, how their lending policies to farms, oil companies and other industries seen as influential in the area of climate change.  The unelected body is pushing to require banks to be more friendly to green energy companies and less supportive of fossil fuels or other industries seen as climate unfriendly.  Jelena McWilliams, the Executive Chair Person on the FDIC board has been the hold out on these political pushes.  Had Congress acted, the FDIC would enforce the rules, but the source of the changes is currently coming from bureaucrats in the government with an agenda.  After pushing back for the last year on the new rules being proposed, on December 31, 2021 Jelena announced her resignation, citing the stress of fighting the new regulations that are being pursued.  With Jelena’s departure, banks in general can expect greater scrutiny, not on risk but more on where they are lending and why.  The concern is that many of these newer industries are high risk models which could jeopardize the strength of many banks in the long run.

Not unexpectedly, the manufacturing sector plateaued in December.  The Dallas Fed Manufacturing Index softened from 11.8 in November to 8.1 in December. While still strong, some leading indicators such as production and new orders were the impetus for the softening.  There is some indication that the supply chain is loosening up, allowing for more manufacturing production.  However, in talking to a number of business owners, we are in for a longer haul before things return to normal, if they ever do.

On the automotive side of things, dealerships are now receiving regular shipments of vehicles.  The catch is that the manufacturers are sending the cars and trucks incomplete.  They are missing the chips on most of the options.  For now, if you purchase vehicle, a number of options like the heated seats, blind spot monitoring, etc. may be inoperable until the dealership receives and installs the chips.  Because the lots are so empty, any deliveries in the pipeline are being sold before they hit the road for delivery.  This means it could be some time before the car lots achieve anything close to inventory levels we experienced prior to the pandemic.

While most consumer items are available, there are select shortages that continue.  Saltine crackers?  No idea what is going on there, but they are in short supply.  Anything coming in Aluminum containers are short due to production issues in France and Germany.  Prepared salad products due to listeria.  Auto parts are in short supply as parts makers are prioritizing auto makers over aftermarket.

Last hit, the oil market.  The US has been pretty steady on oil imports over the past year.  US oil production hit a low in the second quarter of 2020.  Oil rigs shut down in mass numbers in 2020 and are now just building back.  We are at 586 as of this last week.  Production is growing as rigs open up, but are not yet to pre-pandemic levels.  The supply of both oil and gas has improved since November 1, however the surplus continues to ebb which has caused prices to stay stubbornly high.

Have a great first week of the year, hopefully you will get off to a great start.

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