This Week’s Economic Update, June 26, 2023

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Can we openly discuss the disaster that is the American League Central Division?  As of Friday the 23rd, the division leading Twins finally clawed up to a break even point. At this level they would be in last place in the AL East, out of first place by 13 games.  The rest of the division is hardly stellar.  The Tigers are 9 games under .500 and are in third place.  The central division has a combined record against the AL East of 26 wins and 55 losses so far this year.  They fare better with the West going 32 wins and 36 losses.  It might be time to seriously look at disbanding the AL Central and redesignating the teams into the triple or double A minor leagues.  At least then they might have a shot at a winning record.

Grabbing a cold one might be getting cheaper in the future.  A friend of mine, Eric Sannerud, is a hops industry expert.  This past week he shared an article written by Clair Desmarais titled Balance Effort: Hop Acreage Declines in 2023.  While growing over the past few years, the craft beer market appears to be shrinking in 2023.  At the American Hop Growers Convention in January it was reported that a significant surplus of hops existed and that the industry needed to reduce growing acreage by 10,000 acres.  There were 43 types of hops listed in the article showing either growth or curtailment in acres planted between 2022 and 2023.  There were 26 varieties that either experienced no change or a decline in plantings.  Based on Clair’s findings, if you net out all the numbers, hops acreage is likely down over all between 4,200 acres to 5,000 acres.  Based on the findings, there appears to be a shake out coming in the hop farming industry in the next couple of years.

The manufacturing industry continues to weaken.  The S&P Global Manufacturing Index fell to 46.3 for June.  This is the largest contraction since December of last year.  The future does not look bright.  New orders fell the most in 6 months.  Weak demand world-wide linked to struggling consumer confidence is also impacting prices.  Products are being discounted in order to reduce inventories that are considered too high right now.

The service sector continues to expand. New orders were robust according to the S&P US Services index for June.  Services now account for the majority of the inflation that is occurring as greater wage pressure drives prices up. On July 3, we will get the PMI numbers for both manufacturing and service.  That should give us a good indication of the economic growth we can expect for the second quarter.

The housing market continues to be hot.  Housing starts in May rose 21.7% after a rather tough April.  The increase in new housing comes as mortgage rates continue to rise.  In the past reports, the bulk of the housing starts have been related to multifamily construction.  In May, the majority of the starts were related to single family structures.  In spite of higher prices as well as higher interest rates, buyers are clamoring to buy.  With the absolute dearth of existing houses on the market, buyers are resigned to have to build if they want to own a single family dwelling.  The regional numbers are very interesting.  The West, South and Midwest all saw nice increases.  In fact, the Midwest saw a 67% increase in new housing starts in May.  The Northeast saw a 19% reduction in new housing starts, the only region that saw a decline.  This could have something to do with average housing prices, net migration patterns, job creation and/or acceptable building acreage.

The jobless numbers continue to do a slow creep upward.  Initial jobless claims rose again this week.  The interesting story here is that continuing jobless claims are drifting down.  It certainly appears that the unemployed are finding replacement jobs and not being idled for any sort of period.  We will have to watch the saturation point on employment.  That might be the very earliest warning sign of a slight downturn.

Have a great week.



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