This Week’s Economic Update, October 25, 2021

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Happy Halloween.  With all the scary stuff going on from supply chain issues, Covid, inflation, to the Red Sox getting knocked out of the playoffs, it is hard to consider Halloween being a frightening event this year.

The third quarter does not appear to be ending well. September, month over month, industrial production fell 1.3% and manufacturing production fell .7%.  Overall, the early part of the third quarter was strong, only fading in the last month.  GDP for the third quarter is expected to be positive at a range from 2% to 3%. While this would have been great two years ago, it is disappointing now.  Early in the third quarter we were expecting 7%.  The softness coming from virtually all sectors in September portends bad news for the fourth quarter. 

The Philadelphia Fed Manufacturing index in October was 23.8, down from the September number of 30.7.  The New York Empire State Manufacturing index for October was 19.8 compared with 34.3 in September.  That was a massive drop and not just related to supply chain issues.  While consumers, and for the most part businesses, are flush with cash, they all seem to be cutting back on spending and doing so quickly.  Business inventories appear to be staying flat which is a better sign than if they were increasing.  However, with industrial capacity utilization falling from 76.2% to 75.2%, that is a clear sign that business production is mirroring the softening of demand. 

The new housing starts in late September were a negative 1.6% month over month causing further headwinds for the economy.  Existing home sales were up in September by 7% over the August level.  This was a lagging indicator as those are closed sales which were under contract earlier in the Summer.  The real key will be what the existing home sales do in October during a period of higher interest rates.

Not much better news on late September retail sales.  Month over month retail sales skidded from 2.1% to an anemic .7% after pulling out gas and autos.  This core retail sales level was the lowest since the pandemic recovery began in early 2021. 

Just a quick note, due to strong demand, ICBA has added an extra offering this year for the Credit Analyst Institute which I will be teaching November 8th through the 10th.  This will be your last chance to catch the course this year.  The Credit Analyst Institute is a great opportunity to train your staff or hone your skills whether you are an underwriter, credit analyst or commercial lender.  The material covered includes key training on managing the credit risk of your client, enhancing your analysis skills while adding assessment tools in sensitivity analysis, cash flow, including UCA and Global analysis as well as expanding your knowledge of legal land mines in banking.  Don’t miss this chance to develop deeper financial, analytical and business writing skills that will result in better credit presentations for your bank.

For more information, please visit  I hope to see you there.



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