Welcome to the end of July. Typically we call this County Fair time. Hopefully you have been or will be able to attend this key part of Americana. Nothing like looking at the 4H exhibits, seeing the livestock and watching a youth horse show. One of the favorites at every county fair is the demo derby. Not sure what our fascination with destroying vehicles means about our society, but it is wonderful fun.
The economy appears to be humming right along. The second quarter GDP came in at 2.4%. The job market continues to reflect strong numbers in both hiring as well as initial/continuing job claims. The only fly in the ointment on the hiring front is how many workers are being gobbled up by the Federal, State and local governments. This is creating a negative synergistic impact to both business and residents. The rise in government payrolls requires higher taxes which creates a contractionary impact to the taxpayers. The absorption of workers into the government positions decreases the available worker pool causing companies to pay more for help, if they can find them. While the short term economic numbers are positive, this growth in government is a long term concern.
Durable goods orders for June took off. The complete month over month number grew by 4.7%. This was on top of an upwardly revised May number of 2%. Transportation durable goods increased the most which was boosted by non-defense aircraft and parts. This is a reflection of the growth in travel, requiring Boeing and others to expand production. Motor vehicles also increased nicely. We can see the response here as dealership lots are returning to levels not seen since 2019. It was nice to see capital goods, business equipment orders, rising. This is in spite of a continued capacity utilization level that is beneath the replacement need level.
Interestingly the Fed manufacturing reports continue to be soft. The Philadelphia Fed Manufacturing July number is at -13, Richmond is at -9 and Kansas came in at -20. Inventory levels at the various products, from the manufactures to their clients appear to be bleeding off. As indicated in prior updates, manufacturing has been in the contraction zone since November of 2022. The strong durable goods numbers should move the dial up a bit, but it will still remain in the contraction zone. In June the ISM manufacturing number was 46. I am thinking the July number should be 48-49. Between durable goods orders and the start of inventory replenishment, we should see manufacturing begin to grow.
On the agriculture front, the recent bluster of Russia targeting grain exports does not appear to be impacting the prices of wheat, corn or soybeans. While most of the Ukraine production heads to Africa, there appears to be adequate supplies in the West of all three grains. So far the Ukraine production has been able to get through, let’s hope it continues. The expectation is that corn and soybean prices will climb as more of both items are in demand to be used in fuel products
Personal spending rose .5% in June. The increase had been hinted at in prior reports, most notably the increase in credit card debt as well as declines in various inventory items. The reports on travel this summer also pointed to an increase in spending. Digging into the numbers is telling. Consumers spent $52.1 Billion on Services in June. Spending on Goods was nearly equal, $49.1 Billion. The top four contributors in the service spending were financial services (Mortgages and Borrowing), insurance (likely due to price increases), housing utilities and recreational services (Travel). Outside of insurance and utilities the information points to a consumer that is not yet concerned about interest rates or a down turn in the economy. On the goods side, spending was on motor vehicles, energy goods and vehicle fuels. The first relates to consumers likely being able to replace their aging cars and trucks. The rest point to travel desires during the summer vacation season. Outside of vehicle manufacturing, we will have to watch the goods inventories in other manufacturing areas. A stabilization in inventories could keep manufacturing in a contraction mode.
Have a great week.