This Week’s Economic Update, July 19, 2021

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County fairs throughout the US are in full swing.  Bragging rights include who has the best pie recipe, the best-looking flower arrangements, the largest pumpkin, the juiciest tomatoes or the best craft project? The 4H competitions in horse, goat, chicken, rabbits, etc. are heating up.  It is the right time to start practicing eating greasy, sugary, deep fried curiosities prior to the upcoming State Fair.  The biggest draw of most of the county fairs continues to be the annual demo derby.  For some reason we all enjoy seeing people wreck stuff, and what a better event than to watch cars and pickup trucks getting smushed on a muddy, greasy base?  Who hasn’t had a lemon of a car that you would love to see crushed by a 1965 Imperial? 

For the most part this past week we saw reports that show the level of manufacturing slowing a bit.  The Philadelphia Feb manufacturing report slipped from 30.7 in June to 21.9 in July.  The growth is slowing from new orders partly due to higher prices but also due to lower consumer demand.  There is optimism in the report that growth will continue but at a lower level.  April of 2021 seems to have been the peak period for manufacturing.

Industrial production slipped slightly from .7% to .4% in June.  That slippage is expected to continue into July.  The culprit here is pointed directly at a shortage of semi-conductors in which to finish products on the line.  In particular, the June numbers were impacted by the auto industry which had to hold off on production until the chips could be secured.  Chrysler is currently only providing one key per vehicle right now due to a lack of chips.  Yes, the keys you receive have a chip built into them that the car will recognize.  If you lose that one key, God help you in getting another one right now. 

US Manufacturing Capacity rose in June to 75.4% a rise of a .3%.  This is still well off the accepted healthy level of 77% which is reflective of when business should be adding new capacity to be the most efficient.  In early 2018 the level hit 80% before abating in 2019.  A huge drop related to the pandemic cut manufacturing capacity to 63%.  Popping above 75% recently is a good sign but still reflective of a long way to climb back before business really needs to purchase new durable goods.

While retail sales were positive for June at .6% it has to be within the context of the May report which was a negative 1.7%.  A .6% growth after a negative month is anemic at best and nothing to be excited about.  When you pull out auto sales the number is 1.3% which is better, but well beneath a healthy, growing economy.  We are also seeing business inventories grow which is a sign, especially with the supply chain issues that exist, that the consumer is wearing out.  Watch the inventory levels, they are an early sign of a downturn or a pickup in the economy if they start to drop. 

Consumer sentiment is dropping in July.  The Michigan Consumer Sentiment number fell from 85.5 last month to 80.8. The number peaked at 88.3 in April and has been sliding since.  This appears to be just another nail in the coffin pointing to a slowing but not recessionary economy. 

Have a great week.

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