This Week’s Economic Update, May 20, 2024

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The start of Summer is only a week away.  Watermelon, the end of school, vacations, going swimming and late sunsets all bring back memories of wonderful times of the past.  Next Monday is Memorial Day, a key time of remembrance for our Nation.  Leah and I always make at least one event at a local cemetery that commemorates those who sacrificed for our freedoms.  I am sure all of you have family members who set their lives aside to serve in the military both in times of peace as well as war.  My uncle Bob served in the Air Force during both the Korean Conflict and the Vietnam War.  He was a Master Sargent, a mechanic working on planes on the tarmac that had just returned, typically damaged, from a mission.  Thank You Bob, and Thank You to all who have served, your sacrifice is appreciated.

I will be taking next week off, my next update will be on June 3.

The April Producer Price Index increased by more than expected.  This was primarily focused on a few product areas that skewed the numbers.  Energy prices, particularly in gasoline, diesel and electric power jumped the most.  There were select items in the food category that declined.  Service prices continue to rise which also pushed the index higher.  Overall, the disparity between some of the catagories require continue attention.  The most volatile areas in the prices came from energy, which could quickly abate, leading to a quick retreat in the reports in future months.

The core CPI continues to hold steady at .3% per month.  While auto prices, both new and used, are declining due to supply, other consumer prices are rapidly rising.  In reality we do not all purchase a vehicle every month, so a decline in vehicle prices has less impact than shelter prices.  Rents, in particular, continue to rise.  In March and April they rose .4%, that equates to a 4.8% annual rate.  This is one that hits the consumer pocket books directly and is a growing cause of frustration for people trying to balance their budgets.

The last couple of months have been brutal on the consumer.  Demand is slowing down in a number of areas.  We started seeing the lower income purchasers cutting back last month.  Fast food purchases are falling.  More customers of higher income are gravitating to lower price retailers like Walmart.  In the past month there has been a noticeable drop off in larger purchases and big ticket items.  Remodeling projects are being pushed off.  We saw this earlier in the auto purchases, now it is hitting the housing side.  Between higher costs and interest rates, people are deciding to delay decisions in hope of lower rates in the near to mid term. 

Another head wind that is affecting purchasing decisions is the level of debt consumers are dealing with.  The largest jump in debt is in the mortgage field.  As the housing prices have soared, the level of debt has jumped dramatically.  With the higher payments, there are less resources available to maintain a prior lifestyle.  Lower income households are already pulling on credit cards to make ends meet.  The US is currently well above the pre pandemic levels of debt that they maintained.  In fact, in 2019 total household debt was at $14 Trillion, we are now about to surpass $18 Trillion.  We may be reaching the breaking point.  Remember, debt is the way to get something today, consume today, repay tomorrow.  Once a limit is reached, consuming could drop exponentially.

For now, delinquency rates are rising but still considered under control.  They remain below the levels of 2019, for now.  The area to watch will be the credit card debt.  The slope of the increase in delinquencies began in March.  We have two months of data indicating that issues might be growing.  The slope of the increase in delinquencies in the mortgage side has not changed much yet.  Once the slope of that chart changes, we could see a dramatic shift in the economy.

Have a great week.

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