This Weeks Economic Update, October 12, 2020

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Happy Columbus Day.  For those of you that have this day off work, hope you enjoyed it.  While the holiday is known as Columbus Day its real purpose was to honor our Italian neighbors and the heritage they brought to America.  Our history has seen quite a few notable Italians.  More recent key figures include Antonin Scalia and Samuel Alito who served on the Supreme Court.  Race fans recognize Mario Andretti.  Mary Lou Retton is also of Italian descent.  Did you realize that companies such as Subway, Barnes and Noble, Mr. Coffee and Zamboni were founded by Italian Americans?  So raise a glass this week, visit a Italian Eatery and give a toast to the many Italians that helped make America great. 

Covid issues continue to impact our supply chain in spite of seeing the grocery stores and other retail outlets with what appears to be full shelves.  Transportation issues are rife right now with product piling up at the ports, distributors and other logistical centers.  The US has had a shortage of truck drivers for years.  Many small manufacturers have complained that they have loads lined up only to have the trucking firms cancel the pick up and delivery because a more profitable load arrived or a trucker became sick and a substitute driver was unavailable.  Covid has added another wrinkle with fewer dock workers available to unload ships and load rail cars or trucks.  Rail lines are getting backed up due to staffing shortages or having the right rail cars sidelined in locations where they were stored and now can not retrieve.  This is slowing down the movement of grain in particular. 

For those of you that enjoy whisky, you might be interested to know that the industry has been significantly hampered by supply chain issues related to bottling.  While the islands that produce the whisky have been completely free of covid, the British Mainland where the whisky barrels have been taken so the product can be bottled, has been hit hard.  The whisky is being stored but not delivered.  Due to storage issues the whisky plants like Ardbeg and Laphroaig have shut down causing some of the raw material to go to waste. Just another example of the worldwide disruption.

Beyond Covid, our supply chain is also being impacted by the nationwide civil unrest.  Crime in the cities is arising as another issue.  Many trucks have been stopped during their delivery routes and looted of cargo.  So called “autonomous zones” and other areas in cities have become known for the lawlessness surrounding them.  Truckers are refusing to deliver loads in or near these areas which is depriving the businesses in the area of being re-supplied.  If the attacks continue or spread, future supply disruptions could occur.

This past week Ruby Tuesday’s filed for bankruptcy.  We had seen over the past 18 months a number of retailers who were stressed and were filing bankruptcy.  Covid and the government restrictions that were implemented requiring social distancing, pushed the food and hospitality industry to the same brink as the retail segment.  A number of large restaurant chains are teetering on the edge.  Their individual eateries are not going to make it on 50% or less capacity for eating indoors.  The outdoor eating season is fast ending with the colder fall weather.  Unless the restrictions for inside social distancing are lifted or eased, we can expect 52% of existing restaurants to close and never re-open.  This number was shared as part of a Federal Reserve of Minneapolis report that was released this last week.  While the loss of this many small businesses is heart breaking, think of the ripple effect.  Not only will investment commercial real estate values decline due to the vacancies, think of the job losses for part time staff, those that are the most vulnerable in most cases.  How about the drop in food expenditures that these businesses purchase?  This will impact the suppliers, processors and sadly the farmers in the end.  This is also hitting the institutional food companies also, ones that staff the cafeterias in the colleges and schools along with the corporate centers.  They could be added to that 52% if the crisis continues on much longer. 

After being Johnny Raincloud here, I thought I would end with some upbeat news.  The ISM Non-Manufacturing numbers for September were really strong.  The service and retail sector of the economy grew nicely in September in spite of no back to school sales.  The ISM came in at 57.8 compared to the August number of 56.9.  Underlying numbers in the report included a nice uptick in employment from 47.9 in August to 51.8.  The business activity number hit 63, a small jump from the August number of 62.4. Sixteen industries reported increases in activity primarily due to having such a bad report over the summer. Not hard to have a significant jump when you were virtually shut down.  The only industries that showed a decline were agriculture, hunting and fishing.  Overall a good report that shows we are starting to reopen.  Let’s hope it continues.

Have a great week.



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