This Week’s Economic Update, October 10, 2022

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The AP Top 25 football ratings is getting closer to being right, in my humble opinion.  Alabama struggled with the unranked Texas A&M while the other top teams crushed the competition.  Georgia is the new #1 with Ohio State holding the #2 spot.  Based on opposition records as well as overall consistency, Ohio State should be number one with Georgia number 2.  I have to admit the last two weeks have been painful.  Last week the Oklahoma defense failed to show up when the team bus left for TCU.  The outcome was a 55-24 shellacking.  This weekend the offense joined the defense in missing the bus to Texas.  I am thinking they might have fielded the Chemistry Knowledge Bowl Team against the Long Horns.  This was the first time since 1997 that Oklahoma was shut out. 

Before OPEC+ decided on a massive cut in production, the US inventory levels was released on petroleum products.  Remember, at this time, the US is the largest exporter of oil in the world.  We are nearly single handedly supplying both our own needs as well as Europe.  Our crude oil supply levels fell last week by 1.3 million barrels.  Gasoline supplies fell by  a frightening 4.7 million barrels which was on the heels of a drop in supply of 2.4 million barrels the week before.  Our production is virtually flat with an increase of only .23 million barrels.  It is not just a refining issue, but also a drilling issue.  Our oil rig numbers in America declined last week, falling from 765 to 762.  This is not the right time to be cutting production at any level.  In line with my update last week of using the wrong tool to fix a problem, the US Government announced they would release more from the strategic oil reserve to supposedly offset the production issues.  The reserve has not been replenished from the draining earlier this year.  The amount to be released is like spitting in the ocean, not enough to really be meaningful.

While the labor report did decline slightly in total payrolls as well as the U3 unemployment rate, it was not at all a bad report.  Companies continue to hire, when they can find candidates to fill jobs.  The number of open positions continue to be extremely high.  It is hard to say whether the higher interest rates are hurting businesses to a point of laying off or if it is just an issue of being unable to hire because they cannot find qualified candidates. 

The ISM Manufacturing report for September fell to break even in terms of expansion.  The level of 50.9 essentially is at a no growth level.  New orders fell to 47.1 which reflects a contraction, not a good sign of things to come.  Employment levels dropped to 48.7 while backlog orders settled in at 50.9.  Overall comments and indications are that the issues are 50/50, softer demand and supply issues leading to being unable to complete orders.  The key indicators that tell me it is more than just supply is the declining level of new orders and the backlog drying up. 

The ISM Service sector report was pretty much flat from August to September.  In August the report was 56.9.  September brought us to 56.78.  Within the report the individual segments were all just slightly off from August numbers.  Nothing in the report to be worried about.  The comments by respondents point to struggles in hiring, supply chain issues as well as inflation pressures impacting business.

The housing industry continues to shows signs of stress.  Listing prices are not holding, with a number of markets reporting declines in the original prices. Homes are staying on the market, but are still selling.  Market times continue to be very short in terms of historical levels.  The higher interest rates have dampened demand noticeably.  With the expectation of continued rate increases, the long-term outlook for the next 12 to 18 months is not optimistic.  It is not out of the question that 2023 will bring a marked deflation in the housing market.  The depth of the deflation is yet to be seen.

Have a great week



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