Weekly Economic Update August 17, 2020

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This is going to be a very odd time this year.  Everyone is concerned about acquiring Covid.  You can see the look on faces, or at least in the eyes of those with masks if anyone coughs or sneezes.  The look ranges from panic to utter contempt to “What is my exit plan?”  However, from late August to mid September those of us with seasonal allergies from Goldenrod and Rag Weed are going to be sneezing uncontrollably.  We are not contagious and we are no happier than you are with our reactions to these evil, pollen producing, sneeze inducing plants of suffering.  Please have mercy on anyone you see that might decide to not sneeze and seriously befoul their face mask, ripping it off before disaster strikes.  We are not contagious, just miserable.

Producer prices are edging back to where they were pre-Covid.  The PPI in July rose .6% which was a bit above the average over the past two years.  Certain items are rising, but last month was primarily due to energy costs going up.  Service prices moved up .5% in July.  Part of this was the result of high demand and limited ability to hire, leaving capacity at a premium. Many jobs were priced to pay overtime and other costs.

The Oil market seems to be adjusting to a new equilibrium.  Distillates, gasoline and crude oil supplies slightly abated last week as refinery production as well as the number of rigs subsided from earlier levels.  Storage facilities are still full so there is no worry of a supply shock or shortage coming.  Prices will increase attempting to reach $45 per barrel, but that seems to be the max expected.

Retail sales for July grew 1.2%.  That is a softening from June which was gangbusters.  It appears that the pent up demand that arose from April and May has been met.  July numbers reflect a more stable, sustainable level.  When you pull out autos the retail sales were boosted to 1.9% indicating that those who could afford, needed or wanted a vehicle purchased it in June.  Look for more offers from the auto makers to entice new buyers into the show rooms. 

Industrial production in July was a good but not enough to write home to mom about at a level of 3%.  This is off the peak in June of 5.7%.  Note that in June we were still trying to meet the pent up demand from the shutdown.  August should be similar to July at 3%.  Key areas to watch here will be the housing market.  If new home sales continue on the pace they are, industrial production should continue to be healthy.  As the Covid issues continue to bubble up, production of PPE and other medical related production will continue to be strong.  On the flip side heavy equipment, trucks, autos and machines will all be a bit soft or down right ugly until firms reach a higher demand level.  Right now there is no need for more equipment as everyone has what they need to currently meet the new orders.

Because of the calendar we get an extra week of summer before Labor Day.  Enjoy, have a great week.



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