This Week’s Economic Update, October 23, 2023

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Halloween is just a week away.  Ah the memories of grabbing a pillow case and scavenging the neighborhood for the best offerings of candy.  With 30 houses per block, I had to return home a couple of times to empty my loot, before heading to the next block.  That was in an era where bite size and fun size candy bars did not exist.  It was full size candy bars all the way.  My parents and teachers were less than happy with the sugar highs that were experienced in the days after Halloween, our dentists were ecstatic.

At times I find the need to correct prior information that I have shared in my updates.  This is one of those times.  Since the end of July I have been sharing much about the energy market.  I was following the crude oil, distillates and gasoline supplies.  I was also noting the production levels through the refineries.  My greatest concerns surrounded the drop in supplies of crude oil in the United States.  What I was missing was the crude oil production levels domestically.  Having looked at the information I had, I concluded that demand was falling and that prices were likely to hold steady at a high level throughout the Fall.

In reviewing the information that I was monitoring, I realized that something was not adding up.  Refined product prices were not reacting as I figured they should.  Crude supplies continued to fall, but again, prices were not responding as expected.  While monitoring the number of oil wells in the US, the decline being significant and sustained over the past three years, the conclusion was that oil production was falling in the US.  That was dramatically incorrect.  Last week the United States broke a record in crude oil production.  In fact, over the last year, domestic crude production has steadily increased.  We are now consistently producing more oil than ever in our history.  The increase in production is easily meeting the demand that exists for refined products.  In fact, over the past year, not only have we been fully self sufficient in meeting our energy needs, the United States has been a significant exporter of oil world wide.  Even with the unrest in the mid-East, oil production is sufficient to maintain gas and distillate prices at the current if not lower levels.

The East coast manufacturing sector continues to struggle.  Both the Empire State Manufacturing report and the Richmond Fed were down for October thus far.  Manufacturing nationwide continues to be soft.  Capacity utilization is 79.7%, barely above the numbers earlier this year.  Industrial production levels are flat and have been all year.  It was hoped that the level of on-shoring would provide an increasing level of manufacturing in the US.  This may still occur, but may take longer than expected. 

At the same time that manufacturing is flat, we are seeing retail inventories starting to rise.  Retail sales continue to grow, however on an annual basis they are about at the level of inflation.  Therefore, we can conclude that actual unit sales in the past year have been flat. The last part of the third quarter saw a softening of the economy which appears to be continuing in October. 

Long term interest rates are rising.  With the quantitative easing that the Fed is implementing, we can see sustained longer term rates at the current or higher levels.  This is already impacting the housing market.  While the housing starts, raw numbers, show strength, inside the report is a nearly 20% increase in multifamily construction.  Single family starts are extremely low.  New mortgage applications are falling significantly.  As rates rise and housing prices remain high, more and more marginal buyers are dropping out and staying put.  At the same time the number of rental units continues to increase.  2024 could be a reckoning year for the investment residential market.

Have a Great Week



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