March came in like a lion in most areas of the country this past week. For the first time in memory, California received more snow than Minnesota in the week leading up to March. Both states had blizzard warnings. The amount of snow on the ground in Minne-snow-ta this year on March 1 is near a record level. Usually by now we have had a significant melt so there would be space to put the snow we receive in March. Not the case this year. If we get our normal amount for March, we are going to be in trouble. The other concern is as the weather warms rapidly, the melt may be causing some flooding issues. March could be a very interesting month.
The durable goods report for January was released this past week. The December number was up 5.1%. January was down 4.5%. Remember the December number was significantly impacted by the Boeing production number which was a one and done event. It is no wonder that the January number would be off due to that cat going through the snake blip. When you average out the two months, durable goods would actually be up .4%. Defense spending is boosting the numbers by about .5%. Much of this appears to be replacement for what is being sent to the Ukraine. One interesting point that I will tie in later is that businesses are ordering more machines. This is during a period where, historically, we have adequate capacity in manufacturing, adding more equipment would not be expected.
Both the Dallas, Richmond and Kansas Fed manufacturing reports showed contraction during the month of February. This corresponds with the ISM Manufacturing Report that showed a rather static number at 47.7 just above the January number of 47.4. Any number under 50 is a contraction indication. The internal numbers in the report show a mixed bag. Production is contracting and inventories are growing slower than in previous months. This is a matter of soft demand, not too much production. Backlogs are contracting at a slower pace in spite of a slower production level. New orders are slowing. On the employment side the number went from pretty much even, 50.6 to a 49.1, a slight contraction. It appears that manufacturing is currently in a balanced position. April through June is going to be the tipping point, higher or lower. We will have to see.
The energy markets also appear to be near equilibrium in terms of supply and demand. This is the third week where the changes have been minimal in production as well as supplies, moving up or down, but right around the zero change mark. This is also the third week where imports have fallen which reflects we are able to meet our own demand domestically. No word about when or if the strategic oil reserve will be replenished. That could drive supplies down and prices up this summer.
The jobs report this week is interesting. We continue to trend down in both new jobless claims as well as continuing jobless claims. Companies continue to hoard staff, reluctant to lay off people at this time. A look at non-farm productivity could be the answer here. Non-farm productivity in 2023 declined 1.7%, the largest decline since 1974. Lower productivity enhances the inflation level since companies have to pay more for less work which gets passed on to the consumer. This is one reason for the reluctance of many companies to cut excess workers. It is also an indication of why many are investing in new equipment right now.
The next 4 months are going to be extremely interesting. We have plateaued economically speaking. Our inflation rate on a monthly basis seems to have stabilized. However, this stasis will not continue. The economy right now is warmer than the Fed would like. If they do increase rates at a rapid pace, combined with employers working to enhance productivity through automation along with higher inflation, the economy may turn much faster than anyone would expect. The economy may be coming into spring as a lamb, it could go out as a raging lion this summer, not in a good way.
I have speaking engagements over the next two weeks so I will be taking a break. My next update will be on March 27, Have a great month.
