The baseball season is quickly winding down. The pennant races in some divisions are virtually done. The Dodgers pretty much clinched their playoff spot in July. The Yankees had a commanding lead as early as May, but seem to have lost sight if the goal and are now floundering, except when they play the Twins. What had looked like run away races in late July have really become competitive, the final stretch should be exciting.
Since September first we have had a number of economic reports that have been released. Let’s start with the ISM Manufacturing Report.
The August manufacturing report came in roughly flat from the July report. While new orders in the report grew, overall you have to say manufacturing is flat right now in the US. As with the prior reports, it appears that demand is adequate but supply issues create the problem of we can not sell what we do not have. The primary constraint in the supply chain seems to be in the trucking area. Because of the level of new orders as well as supply issues, the back log level continues to increase. Until the parts are available, growth in manufacturing is going to be limited.
The services PMI was also pretty much flat from the July level. The indications in the report also point to supply chain issues. Many service sector businesses rely on specific parts to complete the transactions. This include auto parts, HVAC material, shingles, appliances and the like. On top of the inability to get parts, labor shortages also inhibit the ability to meet demand.
Based on both the manufacturing and service sector reports for July and August, if we have a third quarter of negative GDP, it will again be supply related and not the result of consumer demand.
After increasing at a moderate rate every week, the number of oil and gas rigs in the US had now turned backwards in the past two weeks. After hitting a post pandemic high of 765 rigs, we have seen two consecutive weeks of decline pushing the number of active rigs below 760. US demand for gas has declined all summer long. The reflection of lower demand has been reflective in the pump prices, down about a dollar a gallon from Memorial Day. The level of supply continues to grow in both crude oil and refined gasoline levels. This is in spite of exporting more oil and gas. The US is now the largest exporter of oil in the world.
Europe continues to purchase oil at record levels, using up every conceivable storage facility in anticipation of a full cut off from Russia this Fall. While oil prices have abated from well over $100 a barrel, the foreign exchange rate to purchase the oil with dollars is quickly draining the coffers of the buyers. The dollar is at a all-time high which makes the oil all that much more expensive to purchase. As Europe is likely already in a recession, if the EU decides to increase interest rates to attract investors and ultimately strengthen the Euro, Pound and other currencies, their economies will be further damaged. Overall, they are all between a rock and a hard place. Expect Europe to experience a long-term austerity era.
The US housing market is softening ever so slightly. It is still pretty healthy based on historical levels. However, the trend is now clear. For perspective, prices for average houses are 43% higher than pre pandemic levels. Affordability indexes continue to be off the charts, keeping many on the sidelines. The supply of homes for sale is growing, up 27% from a year ago, but almost 50% lower than 2019 levels. While houses are staying on the market longer than earlier this year, it is also relative. Earlier this year listings had multiple offers, sometimes even before they hit the market. Selling now in less than two weeks is slower, but when historical marketing times are considered, often being 60 days, the market continues to be healthy. As I indicated the trends in the housing market are coming into focus. Within 12 months we will be seeing lower prices, longer marketing periods and a rise in foreclosures.
Have a great week.