This Week’s Economic Update, May 3, 2021

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Mother’s Day is this coming Sunday.  If your mom is still with us please take time to do something special for her whether that is spending time with her or just giving her a call.  My mom was the compassionate one of the family.  She was always there to clean up the wounds, wipe the sand out of the scrapes, spray stuff with Bactine, know when I had a bad day and have cut up strawberries ready to soothe the hurt.  She was my biggest cheerleader in spite of sometimes not really knowing what to cheer for.  Lastly, she was the best at taking a joke or ribbing.  It was our way of showing our love and she was always a good sport about it.  Thanks Mom.

The March Durable Goods Report came out early last week.  Overall, the orders were up .5%, well below expectations.  Part of the issue was a slower growth in auto sales than expected.  Inventory issues and supply chain shortages curtailed the transportation numbers.  There continues to be pent up demand for new vehicles which will undoubtedly show up in the coming months.  Without the slower growth in autos, the durable goods rose to 1.6% month over month.  This reflects a strong consumer demand for furniture, appliances and other longer term goods.  This is partially reflective of the hot housing market with people furnishing their new homes.

The regional Fed Manufacturing Indexes continued to be strong in April.  Dallas grew during April from 28 to 37, matching numbers from 2018.  Richmond held at 17, a very good number.  Another indicator that the manufacturing sector continues to grow was the Chicago PMI which rose 5.8 points to 72.1, a level not seen for more than 25 years.  Embedded in the Chicago report there are indications this is no fluke.  New orders rose 9.9 points to a seven year high.  Production as well as hiring were up but were limited by supply issues and by the tight labor market.  This was reflected in the back log orders which are at the highest level since 1973.  We can expect manufacturing to be growing throughout the coming quarters.

The ISM Manufacturing report will be released this morning and I will comment on it next week.  My expectation is that the ISM number should be 66 to 68 compared with the March level of 65. 

After a miserable year for most restaurants, a new threat to the business model is now arising, wages. Because of social distancing, many food outlets are struggling with table turnover for inside dining.  For most, break even capacity was around 60%, maybe a bit higher prior to the pandemic. Regardless of local regulations, consumers may not want to be packed in while eating in the future.  They are looking for continued social distancing.  As no eatery is ever full all the time, if capacity is now 50% or so of pre pandemic levels, the actual usage might be as low as 35% or so.  Can a business adapt its costs to survive?  Add to this the current employment market.  Many restaurants are now even paying dishwashers as much at $13.00 per hour to start.  This pushes up wages in other positions, increasing the break even point at a time when just the opposite is needed.  Government programs to help the struggling industry will only prolong the issue for many firms.  The key is finding a new business model that will work with the new reality.  How that will look is anyone’s guess right now.

Have a great week.

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