The term trifecta is typically associated with horse racing. I am going to use it to recognize a baseball team that has completely proved virtually every early season baseball prognosticator wrong on multiple fronts. As a kid I figured out that if a baseball team falls back to a position of being 10 games out of first place or 10 games under .500 they were pretty much toast. In most years you would see this level being breached sometime in mid to late June by the true laggards of the sport. The Minnesota Twins this weekend were 11.5 games behind the first place White Sox, were 13 games under .500 and 10 games out of the wild card race. They have hit the trifecta and done so incredibly in May! Hats off to the Minnesota Twins, the team I have always lived and died through, for the achievement. You have astounded all of us who predicted you would be at the top of the weakest division in baseball and once again would take the division pennant. My biggest concern now about baseball is how to unload all my Miguel Sano baseball cards.
Manufacturing continues to set the pace for the economic recovery. The Philadelphia Fed numbers along with the Empire State manufacturing numbers remain super strong. Overall, the manufacturing output for the US is now above pre-pandemic numbers. We are also seeing numbers pointing to renewed capital investment from the manufacturing sector.
There is a very interesting aspect to our increase in capital expenditures. Capital expenditures can be broken into two categories. Old Economy investments are considered hard goods, new buildings, industrial equipment, transportation, either in actual route building or vehicles, as well as tooling. Until this year, old economy investments made up more than 50% of total corporate investments. New Economy investments include software, new technology, such as robotics, as well as research and development on new processes. In 2021 the new economy investments have reached just under 49% and are expected next year to surpass the old economy investments.
Part of the impetus to the cap ex growth is finding trained labor to work the jobs in manufacturing that are open. The other issue is productivity. The new technology provides a bigger bang for the buck on investment by producing product faster and more efficiently using less resources.
We might have passed the peak of the new housing construction boom. Between slightly higher mortgage rates, peaking construction material costs and limited land offerings, new housing starts dropped by 9.5% from March to April. New housing permits increased, but at a much lower rate, only .3%. The issue is also the product mix of what is being built. Multifamily housing is again approaching saturation in the market. With the pending eviction moratorium expected to end, supply will be increasing. The only exception is affordable housing with government subsidies. This area continues to be in short supply. Multifamily housing has been the big driver over the past few years in the housing market. Single family starts have been more aligned with the upper price levels, not starter homes or affordable homes. That part of the market appears to be cooling as those who could afford to purchase and actually were able to outbid others, have what they need. Those that are marginal buyers continue to be priced out of the market and will need to wait until prices abate.
I will be taking the Memorial Day weekend off so my next update will be June 7. Have a wonderful Memorial Day Weekend. Please take time over the weekend to attend a ceremony recognizing those who sacrificed for our freedoms. Have a great week.
