This Week’s Economic Update, March 27, 2023

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1979, The Shah had been deposed, gas prices were rising to over $1.00 a gallon for the first time in history, Jimmy Carter was President, we were all anticipating the release of GM’s first front wheel drive compact car and Michigan State beat Indiana in the NCAA Tournament.  1979 was also the first time the seeds were set by the Division 1 Basketball Committee.  Since then, a number one team has always made the Elite 8.  March Madness took its toll big time here in 2023 as all four number one seeds have been upset.  For me, the Michigan State/Kansas State has been the premier game of the tournament so far.  The back and forth, the key three pointers and the overtime created a dramatic finish where you really hated to see one team lose. 

The banking system continues to catch a lot of attention.  In an effort to allow banks easy and cheap access to funds, the Fed set up a secondary lending facility in addition to the traditional Fed Discount Window.  The new offering, the Bank Term Loan Program, allows banks to borrow for up to a year using their investment portfolio at Par to secure the loans.  The rate is lower than that of the normal Fed Discount Window which also only provides financing for 90 days. 

The Bank Term Lending Program saw an immediate spike in loans as soon as the program was announced.  Of the $300 Billion or so that was advanced, half went to SVB and Signature, the two failed banks.  The remaining $150 Billion went to a combination of all other banks across the nation.  While there were some banks’ that had concerns about liquidity that is not the whole story.  Many banks borrowed due to just basic business decisions.  This is cheaper money with looser terms.  They took advantage of the program to enhance their yields as they make more loans.  Any short term needs for the banks borrowers could be match funded from the BTLP which will enhance the overall net interest margin of the bank.  Why not use the cheaper money?  The second indicator that banks without liquidity needs used the BTLP was the rapid decline in outstanding’s under the Fed Discount Window.  Nearly $50 Billion in loans were paid back in the last week in this program.  Again, if I can swap out higher expense funding for cheaper money, why not?  It is likely that this will continue to be the case over the next year.

Hard to believe we are a week away from the end of the first quarter of 2023.  Hopefully this has been a good quarter to date.  Looking back at the numbers, January was the peak.  February was still good but in many economic indicators we saw a slight softening.  March is a wild card, but likely not to be as negative as some believe.  The early estimate of GDP for the first quarter range from a high of 3.2% down to about .8%.  Based on my novice estimates, which with twenty five cents will get you a bad cup of coffee at a cheap diner, the GDP should be between 1.5 and 2% for the quarter. 

I base my estimate on a strong January that carried the day.  Durable goods were healthy in January, flat in February and may be slightly down in March.  The manufacturing reports I follow all fell off big time after January.  The service sector remains strong, in an expansion mode for now.  Many firms are working off of back logs which are shrinking.  For now, that is keeping the economy afloat.

The news of layoffs have been prevalent since January 1.  By now, most had expected the initial jobless claims to be on the rise.  They are not.  Part of the reason is that departed workers are picking up other jobs quickly.  However, the open jobs number is declining rapidly as these positions are filled and companies look ahead and find they may not need to hire due to the economic softening.  The second reason for the low initial claims, severance packages.  Until the severance ends, the new jobless claims will be muted.

Walmart announced the closing of 15 stores in 11 states. The press release indicated that these stores were “under performing”.  However, when you read the local stories on the closings you find that most of the locations were hit often by thieves.  The store in Brooklyn Center Minnesota had an incredible 6,000 police calls in the past 5 years.  That is 1200 a year.  Three stores in the Portland area were also listed as closing.  Again, all three had a history of theft issues.  The majority of the other 11 locations were also known to be targeted in various types of crime, either in the store or in the parking area.   It is sad that the majority of these stores would not have been “under performing” if people applied but one rule they likely learned in Kindergarten.  If it is not yours, leave it alone.  Unfortunately, the hundreds of workers that will be displaced by the closings can thank the selfish thugs for the loss of their jobs.  So sad.

Have a great week



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