This Week’s Economic Update, October 30, 2023

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The World Series began last Friday, the first two games are in the books. If the series goes all seven games it will end on Saturday November 4.  As it stands, both teams this year play indoors, in more temperate zones.  Here in Minnesota, even our football team plays indoors after 20 years of outside games often described as being played in the “frozen tundra” on NFL films.  Had the Twins made the series they would be playing outside this week.  Saturday, we had our first snow.  The forecast for this week is highs in the mid to low 30’s, snow and windchills in the teens.  If the Twins do return to the World Series, the Boys of Summer may be in for a very rude shock.

The Durable Goods Orders came in at 4.7% for September.  Deeper in the report, indicators were not that bullish.  When you take out new airplane orders, the growth was a meager .5%.  Most telling was the lack of any equipment investment by businesses.  This is a sign that company leaders are expecting a softening of demand through the next year. 

There was an interesting release of information surrounding personal income and personal spending in September.  Personal income rose .3% for the month.  This compared with a rise of .4% in August.  For the year so far that equates to a 3.7% in personal incomes.  While debt levels are rising, it was expected that personal spending might ebb.  This was predicted after the August spending number had fallen to .4%.  For September personal spending rose to .7%.  For the year so far personal spending has risen by 4.9%.  The increase in spending is not so much on goods, but really focused on services.  Travel has been a big recipient of the consumer outlays.  Air travel, in particular, is where the spending is strong. It should be noted that health care spending has also been increasing.  This may be a long term trend due to the baby boomers aging.  Overall, though, the widening spread between personal income growth and personal spending can not continue indefinitely.  The savings rate is falling, liquidity is tightening and debt levels are rising.  The rubber band between income and spending can only stretch so far.

The third quarter growth figure came in at an annualized amount of 4.9%.  This was well above the second quarter as well as any expectations.  Consumer spending pushed the number up, as indicated in the prior paragraph.  One surprising area of growth was exports.  Exports soared by 6.2% in the third quarter.  With the strong dollar you would not expect exports to be this strong. A primary driver in the exports was oil.  As manufacturing continues to contract in the US, about all we have to export is oil and farm commodities.  While the number is strong, the support under it, exports and consumer spending, are weak and not likely to be sustainable.

The UAW settled last week with Ford.  The GM negotiations are close to being finalized.  Sales of new vehicles have been good, not brisk.  Overall inventories have not fallen as previously expected.  There will be a boost during the rest of the fourth quarter in production that should help bump GDP up.  This should help the year end on a high note. 

The past two weeks have seen a near equilibrium in the crude oil as well as refined energy supply levels. On the production level, we seem to have reached a floor on the number of oil rigs.  For the past month the rigs have moved in a narrow range around 600.  While the world is not awash in oil, the levels are holding.  This is in part due to Russia trying to fund their war in the Ukraine and Iran trying to raise as much hard currency as possible for its proxy conflicts it is engaged in.  While the world increasingly becomes unstable, at least for now, energy  prices should remain stabilize.

Have a great week.



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