This Week’s Update, June 10, 2024

Share Post:

The manufacturing sector in the US declined slightly in May.  The ISM Manufacturing report came in at 48.7 which represents a small decrease from April when it was 49.2.  That is the third month of a rather slow decline since it peaked in March.  The leading indicators for the coming months which is embedded in the report indicates little to be excited about in terms of improvement.  New orders and backlogs are down which is not a good sign.  Inventories also dipped in May.  While that might reflect some optimism, in this case it does not.  Most manufacturers still have ample inventory levels to meet the softening demand that exists.

On the flip side of the ledger, services, the ISM report rose from 49.4 to 53.8.  Many of the indicators in the services report are very positive.  Business activity in the service sector took off, increasing from 50.9 to 61.2.  The increase was led by rental real estate growth, hotel & food and health care.  Most comments inside the report relate to concerns over hiring as well as current staff levels.  While demand is increasing, companies are being much more selective in hiring and holding certain employees.  This is an area where caution in hiring has led to a decrease in overall employment levels.

The Jolt Jobs quits was also interesting in the last week.  Job quits increased by just under 100,000 in April.  While the numbers are a bit aged, is showed that employees are slightly more comfortable in leaving one job with the hope of quickly finding another.  To be placed in perspective, prior to the pandemic in 2019, the level of job quits was averaging about where we are right now.  The peak of job quits was in April of 2022.  It has been dropping until the past two months when it started to rise again.  On a trend line from 2014, the level of job quits would be about 4 million while the number in April was 3.5 million.  The level likely indicates a job market that is softer than it has been over the past couple of years.

What is interesting is the BLS job numbers that came out on Friday.  Initial jobless claims continue to be controlled at a level of 229,000.  Continuing jobless claims show that those out of work are finding replacement jobs rather quickly.  In a surprise release, non farm payrolls blew through all expectations in May. The number shot up to 272,000 jobs, more than 100,000 in April.  To shed a bit more light on this number, it is impacted by people moving between jobs.  There is a bit of double counting in the numbers, particularly if in May, the job quits were high.  We won’t know that for another month.

Overall, the job reports in the past week reflect a pretty strong environment.  Beyond the hiring numbers, the average hourly earnings moved up from .2% to .4%, much higher than expected. The only reason the unemployment rate increased was a move from those that are not counted in U3, those who had given up looking for work, deciding to begin to look again. 

There is a story in banking that is just now beginning to break.  It has been an topic that I have been concerned about for some time and often share in my courses related to senior management.  The cost and impact of much of the technology improvements needed in banks requires careful decision making.  Community banks can compete with larger regional banks in many aspects of banking as long as the right decision and right partner is selected in the FinTech area. 

Banking-as-a-service (BaaS) area firms assist banks in providing outside services or allow a linkage to firms to provide specific financial services to many aspects of the field.  When done right and matched with the right partner, it truly empowers community banks.  These areas include investment sources, fund transfers, software solutions and others.  However, it is not often regulated and can increase enterprise risk if you are using a weak provider.  The risk is compounded when a smaller fintech company partners with a larger fintech partner to provide the services.  In the past two months one of these larger providers, Synapse, filed bankruptcy.  While the onion skins are still being pealed back and all is not fully understood, what was found in the funds transfer and hold areas is that $85 million of bank customer deposits that had been moved through the Synapse system appears to be missing.  Until Friday all the accounts were frozen and depositors could not get their money out.  This is something as bankers we should be watching carefully.

Have a great week.

Share

INSIGHTS

Weekly insights that impact risk.

Stay on top of risk management trends and forecasts.

We keep your data private and do not share your data with third parties. Privacy Policy