I have been invited to speak March 12 and 13 at the ICBA Live convention in Honolulu Hawaii. I will be covering the Care and Feeding of Your Credit Portfolio in an Economic Downturn, how to balance growth while maintaining your level of credit risk. ICBA’s annual convention is the largest gathering of community bankers! The educational opportunities at this national event keep bankers up to date on the latest trends and innovations affecting their bank. Attendees are community bank decision makers—a majority are in the C-suite—and are responsible for guiding strategic initiatives to ensure their banks performance. Please go to the following link to find out more information on how to attend.
There are a number of significant reports that were released this past week. The durable goods numbers came out on Thursday. The month over month increase in December was eye catching at 5.6%. When you peel off transportation the durable goods actually fell by .1%. It is very rare that one company will have a dramatic influence on the durable goods figure, but that is what happened in December. Boeing sold a huge order of civilian aircraft which skewed this number. Digging deeper into the durable goods report we find that automobile sales have petered out. When you link the durable goods number to retail inventory, you see that inventories of autos are increasing, creating a glut on the market.
The economy this January is not looking good. When you cross reference the durable goods, inventory levels and the various Fed Manufacturing Activity reports you can see a pretty clear picture. Taking Boeing out of the equation, durable goods production is headed downward. Each of the Fed reports for manufacturing, coming from New York, Richmond, Kansas, Philadelphia and Chicago, have turned negative. Inventory levels across the spectrum have increased more than .3% in the past month. Business owners as well as consumers are pulling back on spending as we hit the new year. Based on the information, the ISM Report coming out on February 1, will likely refect continued contraction in manufacturing.
Since the pandemic commercial loans had been on a slight but steady increase. That trend seems to have peaked December 14, 2022. There has been just a slight drop in commercial loans over the last 45 days. We will have to see if that decline continues or if this was just a limited blip. It could be a signal that companies are concerned about the future and are reluctant to expand in the current economic environment and/or at the current interest rate levels.
The job market is showing more resiliency than expected. Initial jobless claims have dropped and there has been no spike in continuing jobless claims. Both of these indicators would be expected to rise in a tightening economy. We have heard of a number of larger companies, particularly in the tech sector, that are laying off workers. Some of the layoff figures have been impressive. These are not showing in the numbers yet because of Federal Law. Employers above a certain number of employees have to give at least a 60 day notice for impactful layoffs. Whether the unemployment levels rise in March or not will be based on a number of factors. A large number of those laid off appear to be getting offers from other companies that are still growing. A second factor will be the level of severance that is offered that will delay the applicant from receiving unemployment assistance. This Spring could be interesting.
Peak inflation may be past us, however, the price levels continue to cause pain. For the final quarter of 2022 inflation grew at an annualized level of 3.2%. This is well off the highs of the mid year period. We do have to consider the impact that lower energy prices had on the level of inflation. With the opening of China in January, limited refinery runs, dropping oil rig numbers in the US, and a reduction in our oil imports, the lull in energy prices is over. This could drive inflation back up in the coming months. While goods are piling up due to softening demand, as I shared last week, inflation in the service sector continues to be an issue. While we might be past peak inflation, again we have a long way to go.
Have a great week.