This Week’s Economic Update, June 3, 2024

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In 1977 I was in high school and bought a used 1971 Plymouth Duster.  It had a weak 198 cubic inch slant six engine with a manual three speed transmission.  It was all but used up when I bought it with 88,000 miles showing on the odometer.  I paid $500, that would be just shy of $2,600 today.  That poor Duster breathed its last prior to hitting 10 years, never did see 100,000 miles.  Back then, vehicles rarely made 100,000 miles between the rust and the poor quality engines of that era. 

This past week a report was released on the age of vehicles in the US.  The average vehicle on the road today is 12.6 years old.  31% of the vehicles today are less than 6 years old.  Vehicles that are 6 to 14 years old account for 38%.  31% are older than 14 years old.  On average the amount of miles driven per year is 15,000.  Essentially, an average vehicle today has 189,000 miles on it.  Based on the numbers, there are 30% of the vehicles that are well over 250,000 miles.  Due to the quality of the vehicles today to resist rust along with the reliability of better-quality components, we can expect this longevity to continue to grow.  Of course, based on the prices of new vehicles, they need to last as long as possible.

As the age of vehicles is extended, the level of sales in the auto industry will be stressed.  Between the vehicle quality and changing societal attitudes toward driving and even personal ownership, the level of new vehicles will likely peak soon.  We also have an overabundance of auto makers striving for a shrinking market.  In the end, during the coming years, we are very likely to see more automakers merge/fail while a contraction of dealerships is highly probable.  This is an industry ripe for massive change soon.

This ISM Manufacturing report is due out on June 3, after the release of this update.  Over the past couple of weeks the Federal Reserve reports reflect a mixed bag.  The Richmond Fed came in at a break even level, an improvement from the prior month which was -7.  The Dallas Fed report weakened from a positive 4.8 in April to a -2.8.  The Kansas Fed report improved from April, moving from -13 to a -1.  Overall, manufacturing is likely at a stall speed.  I would expect the ISM to be around 49, not as bad as it has been over the past year, but not expanding.  It is likely not going to improve until long term interest rates begin to fall, the dollar weakens considerably and businesses begin to invest in new equipment. 

The economy seems to be leveling off.  As above, manufacturing continues to languish.  The housing sector is struggling with high rates and high prices which are pushing out more and more from purchasing at this time.  Auto sales have leveled, but inventories continue to grow.  The labor market has stabilized with layoffs holding at a near constant amount.  Even continuing jobless claims have been flat for the last month.  Consumer spending has leveled off between 1 and 2%, not great but not bad.  I would not expect the second quarter of 2024 GDP to be much over 1%.  Not a recession, but a level that makes things feel not so good.

The inflation numbers are also leveling off in that mid to high 2% range.  It is not the current level of inflation that is a problem, it is the inflation of the last 3 years that is creating the angst.  Even though wages have improved, seeing prices that are 20% higher than they were three years ago has left a psychological impact.  It is just tough to look at the prices and feel good about spending money. 

Have a great week.

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