This Week’s Economic Update, March 15, 2021

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The Minneapolis Auto Show was always a Spring Tradition in our family.  I have not missed attending the show since 1975.  That included last year when we attended on the very day it was shut down early.  Due to the pandemic, the organizers have moved the show date and venue.  It is now in May and will be at the State Fair Grounds.  I also noted that they have increased the price of the tickets, which, no one pays anyway due to all the discount tickets floating around.  It is always fun to sit in new cars, see the prototype models and get a bag full of free stuff from the automakers.  Just have to wait a bit longer this year.  Oh Well.

In hindsight the unemployment numbers from mid 2020 to now are being re-assessed.  The numbers of unemployed workers rose to a breath taking high in May of 2020.  The rise from a very static 3.9 million level pre-pandemic hit a peak in May at nearly 15 million.  Congress could not act fast enough to expand unemployment benefits and push cash out to those in need.  As with most programs, the speed of the roll out is positively correlated to the level of fraud that the programs are hit with.  The unemployment program was no exception.  For the most part, this fraud would not have been detected had the year end not produced an uproar from employed people who began receiving 1099 G forms.  This is the form that tells you how much you received in unemployment payments which has to be claimed for tax purposes. Sadly, this also shows how prevalent identity theft continues to be.

The actual fraud numbers are staggering.  California alone suspects that the fraudulent payments could be more than $30,000,000,000.  Just like with the PPP funds, the government, both state and national, were more afraid of bad press which could arise because money was not given out fast enough than worried about fraud.  Normal processes to catch fraud were ignored, no confirmations from employers as to actual layoffs, kind of that dual control, were abandoned.  In the end, the unemployment numbers for all of 2020 are now suspect and the governments are out Billions of dollars with no hope of getting any of it back.  Not one State in the US went un-touched by the fraud with California being the largest target.  Until a full accounting is completed, the unemployment numbers are not to be trusted.  At this point you can not even guess at the level of actual unemployment because the fraud is continuing to grow, especially with the new Stimulus program which maintained the $400 bonus on unemployment benefits.

While the price of crude oil and gas continues to rise, supply stocks are growing rapidly.  On March 5 crude oil stocks were shown to have increased by 12.792 million barrels.  This was the largest increase in the supply since April of 2020 at the start of the pandemic.  While demand is growing as the world economies begin to re-open, if supplies continue to grow at this level, prices will have to abate.  This crude oil stock increase should shift over to surplus gasoline reserves in the coming weeks.

One reason for the increase in crude oil is the resurgence in the US drill rig numbers.  With the price of oil marching into the upper $60 level, wells are opening faster than indoor dining.  The total rig count is now over 400, more than double what is was in August of last year.  While there was a supply disruption during the extreme cold in February, the production is back on track. 

The Producer Price Index for February showed a very moderate increase of .5%. This number includes the full basket of goods at the producer level.  Often this is a leading indicator of inflation yet to come as the increases here get pushed out to the consumer level as goods are produced.  The Core PPI which pulls out food and energy from the overall index was only .2%.  Both of these numbers were lower than the January figures which were over 1%.  They also counter much of what I have been hearing when talking to my contacts or other price reports I have seen.  Most business owners are concerned enough about inflation that they are attempting to purchase inventory now to get ahead of future price increases.  I say “attempting” as the supply chain continues to be an issue with an inability to meet demand for new orders.  We are all hearing about the supply shortages in lumber, plastics, steel, aluminum and other core products needed in industry.  

One closing note.  I will be instructing three great courses for ICBA on April 12, 13 and 14 via zoom.  .  April 12 is Agriculture Credit Analysis, Cash Flow, Structure and Early Warning Signs. Analyzing Business Financial Statements is being offered on April 13 Lastly on April 14, Cash Flow Analysis, Getting the Cash Back, is offered.  If you are interested in any of these courses, please check out the ICBA website, ICBA.org. 

Have a great week.

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