This Week’s Economic Update, July 10, 2023

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Here we are in the middle of the dog days of Summer.  When I was growing up, we had black labs.  Our first one was named Princess.  Being the imaginative family that we were, when she passed away, we replaced her with another black Lab and also called her Princess.  Believe me, neither enjoyed the Dog Days of Summer.  They typically hid in the house or, if outside were always looking for shade.  Most of the time you would find them sleeping under a car or other covering to get out of the heat.  I did not realize until much later that the Dog Days of Summer have nothing to do with our canine behaviors.  Instead, it marks the celestial rising of Sirus, the Dog Star.  I find it funny that we have the Dog Days of Summer for Sirus, but nothing in early August for the rising of Orion, the hunter.  Maybe August could be the Happy Hunting Days?

 Manufacturing appears to have stabilized the last couple of months.  After moving into a contraction zone last October, manufacturing was in a steady decline until about April.  The last two months continue to show a contraction in manufacturing activity; however, the decline has bottomed out.  The ISM manufacturing report put activity at 46, a bit lower than May, but not significantly. Within the report are some green shoots of improving conditions ahead.  New orders are contracting, but at a slower level. Inventories are contracting which is a good sign. Likewise, backlogs are contracting but at a slower rate. There was a contraction in employment which was interesting.  Will share more about that later.  The Fed Manufacturing reports from June continued to show a slight decline in business activity.  The coming months will tell us if things improve or if manufacturing is going to languish for a while.

The ISM service report produced some good news.  Activity in the service sector improved, growing from the May index at 50.3 to the June level of 53.9.  Virtually every sub category in the report showed positive movement from May.  Banking was an industry that experienced a nice upswing in demand.  It appears that many firms are planning capital expansions for later this year, driving up business for the banks.  Most of the sectors are reporting issues finding staff to hire.  This is also producing complaints about continued higher labor expenses.

This leads to the jobs report this past week.  The ADP report was over the top with and expansion of 497,000 jobs in June.  The majority of the jobs created were in the service sector, led by seasonal hiring in leisure and hospitality.  Any consumer facing service industries had a strong hiring month. 

The Friday US Jobs Report was a bit toned down.  Non-Farm Payrolls were at 209,000, down from an overly hot May at 306,000.  At first glance that would indicate a cooling of the market.  However, digging into the report we find that the average weekly hours increased in June over May.  The average hourly earnings went up .4% in June, a number that equates to 4.8% an annual increase. That is huge.  It also gives some indication that the job market is much stronger than the 209,000 expansions would show.  Firms will not lay off or fail to hire if they are expanding hours and pay.  It appears from the numbers as well as comments, that firms are again unable to find quality, qualified workers to hire.  So instead of seeing the 97,000 drop in new hires as a negative, it likely shows we need more workers to meet the needs of the economy.  With an unemployment rate at 3.6%, well beneath what is accepted as a natural unemployment rate of 4.4%, it is clear that our working population is not sufficient to meet the economy’s needs. Have a great week



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