This Week’s Economic Update, July 3, 2023

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Hard to believe that half of 2023 is already over.  Only 178 days of Christmas shopping left.  Hopefully all of you are having a wonderful July 4th extended weekend to enjoy with family and friends.  The fireworks events on the evening of the fourth have always been my favorite part of the Summer, ever since I was a kid.  We are so blessed to live in a country that protects our freedoms.  Every time I watch the fireworks it reminds me of the sacrifice others have made to make our lives what they are, free.

The second quarter of 2023 appears to be ending on a nice upbeat note.  Remember the end of the first quarter?  It seemed like everything was pointing down.  Manufacturing was off, banking was at the start of a struggle.  The housing industry was in decline and the service sector seemed to be cooling off.

The economy began to regain ground in May and the June numbers so far show a resiliency that appears to be sustainable.  This is in spite of higher interest rates.  This past week we saw new building permits go through the roof.  At 5.6% growth, it represents the highest level since October of 2022.  The permit levels are back to pre-pandemic levels.  The increase appears sustainable as potential home buyers have no real option since there is a dearth of existing homes on the market.

A quick note about the existing home market.  A report this past week pointed to a massive amount of over supply of airBNB’s.  Many owners are struggling with cash flow while the houses sit vacant but the mortgage payments continue.  This along with certain single family rentals that are also either vacant or are unable to be rented at a level sufficient to cover the owners debt payment, is creating a concern about either foreclosures or forced sales.  If owners decide to sell, the market could be suddenly flooded with a glut of existing houses all depressing the market.  This would drive values down significantly, popping the real estate bubble in a very ugly way.  We will have to watch for this later in 2023 or early 2024.

Durable goods rose 1.7% month over month in May.  This was an upward departure from the consensus which was to a market contraction.  If you pull out transportation the number was a respectable .6% growth.  Pull out the defense numbers and it was over 3%.  That indicates that business investment as well as consumers are feeling good about the future and making new investments.  This was not an inventory replenishment, but actual sales.

While the Fed manufacturing indexes still show contraction in the industry, the numbers are all off the bottoms.  They are getting closer to zero so by September we might see manufacturing back to an expansion level.

After two weeks of climbing initial jobless claims, this past week saw a 30,000 drop in the new unemployment applicants.  Continuing jobless claims dropped by 20,000, a trend that has been going on for some time.  The job market appears to be maintaining a tightness in spite of news of layoffs. 

As the final first quarter GDP number came in at 2%, based on the second quarter strength, we have to expect that the GDP for this quarter should be about the same if not slightly higher.  That pesky recession just seems to get pushed out another quarter.  I will be the first to admit, I figured we would be half way there already.  At this time, it does not seem to be in sight.

Have a wonderful 4th.



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