Only seven days of Halloween shopping left. Hopefully you have been able to find sufficient candy to distribute on what my brother and I referred to as Early Christmas when we were kids. There was a fear that candy would be in short supply earlier this year. This led to talk that Halloween would not come this year. Thankfully, it appears the kings of candy, M&M Mars, Hershey and others were able to ramp up production to again make Halloween the joyous holiday it was created to be, a chance for every kid and many adults to achieve that sugar high that will last for days into November.
The reports for the last week paint a very interesting picture of our economy. After two consecutive negative GDP quarters earlier this year, we technically entered a recession based on this one variant. However, as I have shared before, this is a very different down turn than we have ever seen before. Demand from the consumer continues at a fever pitch. Select segments of the consumer population continue to spend and spend strongly. Many businesses are struggling to keep up with demand. Travel is at record levels in spite of sky-high airline seat prices. Gasoline continues to be hovering at the $4.00 range with little impact on driving. Key discretionary products continue to be purchased, again even with inflation in some sectors running well above 15%.
While interest rates are rising, we have seen an abatement in the housing market. Between the higher costs of mortgages along with the scorching high prices for both new construction and existing housing, there is still strong demand. New housing starts in September slumped 8% falling into a seemingly stuck level between 1.4 and 1.5 million newly begun dwellings monthly. About half of these new starts were single family dwellings. If you look back on historical levels, the overall starts are still well over the average in the pre pandemic era which hovered around 1.2 million per month, during a period which we had much lower interest rates. In that respect, the housing market, while off the peaks, is still very healthy.
We received both the Empire State Manufacturing index and Philadelphia Manufacturing reports for October last week. While both reflected a drop-in activity, behind the overall number, is some interesting information. For New York, the level of new orders in October held firm reflecting good demand. Unfilled orders climbed due to issues with both labor and materials. Outgoing shipments leveled off, also indicating that the issues with the supply chain continue. The Philadelphia report does indicate a bit more stress with new orders slightly off, shipments remaining low, but strangely, higher employment. Both reports decry the increasing prices as a hinderance in the future. To be clear, the reports both show a steady or stable environment for now, but future expectations by respondents point to a rather difficult time in 2023.
US Industrial production, as well as manufacturing production, increased in September over August. In fact, manufacturing has been increasing over the past 4 months at a slow but steady pace. We are also increasing capacity utilization which could point down the road to businesses having to make capital purchases to efficiently meet future demand.
The jobless claims remain relatively low. At 214,000 job losses for the month of September we are back to pre-pandemic levels. The same is said for the continuing jobless claims, back to pre-pandemic levels. Based on the number of open jobs, employers who are seeking workers, wage increases and the inability to meet customer demand and service levels, it appears that the overall job market continues to be strong.
The information for now, reflects the oddest recession that our country has ever seen. The key question is how long can the economy hold at the current level of inflation? Recognize that the Fed interest rate moves have not yet had the full effect on our economy. Past history has told us that the lag time from the first interest moves to recognizable impact is about 18 months. That makes the 2023 outlook rather interesting.
Have a great week.
