After a torturous February it appears that March is coming in like a lamb this year. Not sure what March going out like a lion might look like, but lets hope it is something along the lines of replenishing rain fall to assist the farmers in sub soil moisture levels.
Once again the first of the month falls on a Monday so my report this week will arrive before the ISM Manufacturing report will be released. I will cover the manufacturing and service reports next week.
The Dallas Fed released their manufacturing report for February which produced a bit of a surprise. In spite of being shut down for nearly a week due to cold weather and power outages, the manufacturing report showed a dramatic rise from 7 in January to 17.2 in February. That is the largest jump in over a year. Throughout the report the individual indicators were strongly positive, especially the new orders which points to continued future growth.
As might be expected, distilled energy products in the past week declined in supply. The cold weather shut down both well heads as well as refineries across the South. The loss in production of crude oil is estimated to be between 18 million and 40 million barrels. At the same time, 20% of the United States refining capacity was off line. This of course has pushed the price of crude to levels we have not seen since July of 2019. The curtailment of production in the US has allowed for a drawdown in overall supplies assisting Saudi Arabia and others to profit while they hold their production at agreed levels.
During the last week, supply of distilled products fell across the board. Gasoline production fell by 1.295 million barrels. However, supplies themselves are at ample levels to meet demand. Crude oil reserves actually grew by 1.285 million barrels due to upticks in production in other regions. As the economy now opens and people are becoming more mobile, we can expect gas prices to hold in that mid to high $2.00 level. Production will catch up, but the draw down in some inventories will likely allow the cushion to be narrowed.
Durable goods orders in January were very strong. Overall, the 3.4% growth was well above any expectations, actually 3X expectations. When you pull out either transportation or defense the number fell but only marginally. Orders for autos, trucks and planes were strong in spite of the early start of micro-chip supply chain issues. The chip issue will undoubtedly hit durable goods numbers in February. We will want to watch for that. Defense spending also was strong in January.
With the pending approval of the next stimulus, the expectations of future economic growth and the pent-up demand of the consumer, inflation concerns are rising in the market. The 10 year bond popped over 1.5% again, in spite of the Fed manipulation. As I stated prior, this is the first recession that the consumer has come out of with more cash on hand than less. We can expect a strong level of demand for all products as the consumer begins to “catch up” on spending.
Each Recession hits someone disproportionally. The Great Recession hit executive levels hard. The 1970’s recession hit blue collar workers. The Covid Recession decimated that low income, part time and unskilled workers. The industries hit the hardest were all low income, low skilled areas. Many of these jobs will not return in the Hotel, restaurant, retail, and service fields. Because many firms in this area have closed for good, that jobs will not be returning soon. With higher minimum wage laws going into effect in some states, the likelihood of new businesses opening is pretty slim in these areas. At the same time jobs in skilled areas are being unfilled due to lack of qualified candidates. the future is going to be good for those that invest in themselves, building the right talent and skill. A better stimulus investment by the government would be in training for skilled jobs, giving the displaced workers sufficient income and tuition assistance to complete training programs. Further unemployment or stimulus checks just prolongs their pain.
Have a Great Week.