This Week’s Economic Update, July 1, 2024

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We will have to agree to disagree today.  I was blessed to have grown up during what has to be the golden age of major league baseball.  From 1960 through 1972 the greatest baseball players took the field, and yes, I still have all the baseball cards I collected as a kid.  My absolute favorites were Bob Allison, Harmon Killebrew, Sandy Koufax and of course Willie Mays.  The Say Hey Kid passed away recently and he will be missed.  I consider him the greatest player that ever donned a mitt and picked up a bat.  While Micky Mantle could place a home run into the next state, he was average in the field, slowed with knee injuries.  Hank Aaron and Harmon Killebrew had higher percentages of home runs at bat, but again, Willie covered his center field position and had an arm that could not be beat.  His 301-batting average in comparable to Hank Aaron at 305 and Mickey Mantle at 298.  However, when on base, he was a formidable threat.  His 339 stolen bases far eclipse other power hitters of the era.  Between his strength at the plate, speed on the base paths or coverage in center field, one is hard pressed to find a more talented player in the game.  Say Hey, Willie, Say Hey.

Manufacturing continues to contract per the various Federal Reserve reports.  There appears to be adequate inventories available to supply the demand that currently exists.  Without a strong increase in residential construction, industrial expansion and consumer demand, manufacturing will be in the doldrums for a while.  While manufacturing is about 12% of our total GDP, its direction is definitely part of the softening we saw in the economy during the first quarter.  At 1.4% growth, we are seeing the start of a soft landing. 

First quarter GDP was assisted by new construction in the multifamily area, new equipment and intellectual property growth.  However, the construction market is currently softening due to oversupply, so for the second quarter this will have a dampening effect.  New equipment for commercial use is running about a 1.6% growth.  For now, firms are plugging new investments where replacements are required.  Expansion is still on the table, but not being acted on.  Overall capacity is slightly climbing but with interest rates, few are jumping in with both feet to expand their firms.  Two areas that showed improvement over the fourth quarter of last year was exports and government spending.  The export numbers were a surprise due to the strength of the dollar which typically depresses this number.  The real softness came from consumer spending.

While the Fed continues to maintain interest rates, government spending and borrowing continues to be on a tear. The US Money Supply continues to grow at troubling levels.  After peaking in March of 2022, we experienced a decline as loans were repaid.  However, borrowing at all levels, not just government spending, is now increasing, a rise that has been trending since October of last year.  This is going to make the inflation level harder to control and achieving the Fed target of 2%. 

While some disinflation is occurring, we are seeing a resurgence in shipping costs worldwide.  The shipping disruptions in the Middle East are continuing which is costing firms more to get product safely around the area.  Possible strikes both in Europe and the US are causing concerns.  Freight rates have risen between 36% and 41% in the past two months.  This is not a demand issue; it is a supply of shipping as well as longer routs to avoid conflict areas.  Another impact is the Panama Canal which is at low water levels due to an on-going drought.  None of the factors impacting costs are expected to abate until deep into 2025. 

Have a good week.

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