1975 was the first year we had a summer blockbuster movie. Jaws was the tsunami that swept away office box records, waves of movie goers returned weekly to see the shark take a bite out of their pocketbooks for tickets and concessions. Over the years we experienced out of this world epics like Star Wars in 1977, 1980 and again in 1983. In 1982 ET stole our hearts trying to phone home. Ghost Busters was a supernatural hit in 1984. The list could go on and on, Jurassic Park, Batman, Dick Tracy…. The list looks like it stops this year. 2020 will be known as the Summer with no blockbuster. The studios are holding back any releases until it is “Safe to go back in the water”.
The ISM Manufacturing Report for June was unexpectedly high. At 52.5, it is the highest performance since April 2019. Within the report the underlying numbers were just as strong. New orders and production are rising rapidly. New exports were at 47.6, while still in a contraction mode, they are much closer to expansion than the prior months. Of the 18 total industries that are covered in the report, 13 reported growth. Four industries that showed contraction were Transportation Equipment, Primary Metals, Fabricated Metal Products and Machinery. No surprises here, with the capacity that is remaining in the economy, firms are not yet in need of any new fixed assets.
The Jobs Report on Thursday looked better than it was. The underlying tell tale sign was that as the actual job numbers increased nicely, the wage level decreased. The high new job number was retail and hospitality workers being called back. Overall these are lower paid workers so the average wage level dropped by adding the new jobs. The weak underbelly of the report is that as the Covid numbers show a resurgence, these new jobs might go away as fast as they appeared. We are not out of the woods yet with the high unemployment numbers.
In the Federal Reserve 9th District, that would be Michigan to Montana, the Canadian Border to Iowa, there are some interesting job loss information surrounding Covid. Of course the hospitality industries were hit the hardest so unemployment there was the highest. This pushed Michigan to have the highest bump in unemployment of the states in the 9th district. South Dakota had the smallest move in unemployment primarily due to the strong manufacturing and banking industry. Not to mention, they never really shut down. Whites and Hispanic unemployment moved in lock step with the smallest drop in lost jobs. African American and Native Americans lost jobs at a much higher level. The defining factor was education followed by the type of job. Without a college education you were much more likely to be laid off. Without a high school education your job was most likely gone early on. White collar and trade jobs, particularly construction, were the safest jobs.
We are starting to see the first signs of stress in the banking industry. The number of reported deferrals, restructures and modifications of loans are rising. While the actual numbers will not be fully known until the second quarter call reports are released in September, various surveys are giving the early heads up. Real Estate loans in virtually all categories are showing stress. Last week I spoke of the forbearance levels on securitized home mortgages. That is a sign of the stress to come. Construction loans for commercial properties are also showing a rise in past due payments. This sector is likely muted as too many banks fudge in this segment and capitalize interest into the financing. This is a big no no but I still talk to too many bankers who regularly put an amount for interest payments into the advances on the loans. BTW, even one is too many.
I will have more on this next week, particularly investment real estate. I will also have the ISM Non Manufacturing report numbers which will be released on Monday.
Have a great week.
