Weekly Economic Update, July 27, 2020

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The Kansas Fed Manufacturing numbers rebounded nicely.  The July figure came in at 7.0 up from 2 for June and -60 in May.  At the current level it is back to the level from the fourth quarter last year through early this year.  Non-durable goods drove the number up.  As a whole, manufacturing is recovering faster and in a more balanced way than any other industry right now. 

The energy supplies appear to have stabilized from the chaos of April.  Gas supplies are averaging a weekly level similar to the third and fourth quarter of 2019.  This is not because of any improvement in demand, but a drop in rigs and the volume of oil going through the refineries, which is way down.  After supplies of crude oil dropped by 8.5 million barrels last week, the supply increased by 7.5 million barrels this week. The erratic movements of crude supplies over the past month indicate some parties are playing the market, trying to move the prices.  Overall oil has moved up 20% from $34 to $41 per barrel since May 25.  Even with the low demand, we can expect gas prices to begin to rise from what are pretty low levels right now.

It was really not a surprise to see the new jobless claims rise after falling for two months.  The rise was minor.  While the numbers were impacted by the reopening of retail, hospitality and service industries since the beginning of May, the increase in COVID cases recently required a pullback in areas most impacted by the new spread, namely retail and service.  The continuous claims continued to fall which is a good sign that some sectors are hiring.  Manufacturing for one continues to have many open positions.  A clearer picture of the new job market normal is appearing.  There are many industries that are going to be forever changed and may not come back.  Retail of course, certain service areas like child care is being devastated as well as agriculture and hospitality.  Jobs lost in these sectors are unlikely to return.  This has caused a permanent shift in the continuing jobless claims market.  Workers in these industries need to be retained to locate new viable careers.     

Back to school, or not.  The uncertainty of education in the US will have a strong economic impact.  The most obvious is back to school supply sales.  While retailers are putting some material out, most is not moving off the shelves until parents here whether or not their kids will be in school or at home.  Both parents and teachers are sounding off about on line teaching.  The majority, that is over 50%, of both teachers and parents want the kids returned to school.  Parents working from home complain that having to corral their young’ens to do their work or just stay motivated is pulling them from getting their own work done.  Access to teachers for questions on homework has been hit or miss.  Areas with limited internet speed or access are leaving kids behind.  Kids are less split on returning, some miss the social aspect but a large majority do not miss the work aspect.

On the college front parents and students are complaining bitterly about the quality of the education they are receiving without any real tuition cuts.  How can you teach Chemistry without going into the lab?  The biggest hurdle is the infrastructure.  Classrooms have been designed with the basic 1800’s education model of a ratio of students per instructor.  If social distancing now impacts that ratio, education entities must rethink the whole campus structure.  To service the same amount of students without building all new schools, do we move to even/odd days where half the students come one day, and the others the next?  Does this now require year round school sessions?  The existing school year structure is also based on an 1800/early 1900 model that was based on an agricultural economy. 

Ponder for a moment all the industries and events that rely on a summer school break.  The economic impact of changing the educational system will only compound the problems our economy is facing in light of all the changes that will be required across the spectrum.  Washington as well as our corporate leaders need to realize that under the new Covid Paradigm the same old policies will not work.  Bold, new ideas that come from a different perspective are going to be required.

Have a great week.  



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