I have mentioned many times recently that I am going to scrutinize economic data closely for the next few months–or maybe all year long. There are times when we are in a very ‘Goldilocks’ environment when one can skip the intense look at data–I don’t think this is one of those times, although the numbers have tended toward a stable environment. With a new President and soon to be all new departments heads we could have news that drives interest rates all over the map–I hope not–who needs the stress? The only good part of that stress at this point in time is one can ‘bail out’ to CDs and MMs right now at 4+% if necessary (subject to change of course).
So last week, being another holiday week, sh were short on truly meaningful economic news–and for that matter it was short on company news.
We had the Chicago Business Barometer–this is really a purchasing managers index for just the Chicago area. The number came in soft at 36.9 versus a forecast of 42.2 and last months reading of 40.2. This number has been published since 1967 and had a low of 20.7% in 1980 and a high of 81 in 1973. The all time average is around 54–so a fair conclusion is that Chicago area purchasing managers are kind of in the dumps. We’ll watch the future and see if this is a meaningful number.’
We had the ‘pending home sales’ released from the National Association of Realtors which came in at up 2.2% compared to a forecast of .7%. From my observation most potential buyers have gotten used to the 7% mortgage rate–memories are short in the United States. It is interesting that the supply of NEW HOUSES is zooming higher–at 8.9 months supply. This is up from the most recent low supply number in 2020 which was a 3.3 month supply. The recent high level prior to the current number was in October, 2022 at 10.6 months supply. I am thinking (right or wrong) that if inventory grows much more–maybe to 10 months or more we are going to see issues in the housing markets. Housing is a large sector and affects lots of sectors from building supplies to furniture. This is one to watch. This info is from the St Louis Fed and can be seen here.
The weekly 1st time unemployment numbers were released last Thursday. The numbers were 211,000 which was quite a lot under the 225,000 expected. This number continues to remain fairly good–although if it falls much from here one would think there would be a fear of wage inflation. I think this number is suspect–the holidays may well make these unreliable – we’ll see if this get large revisions next week.
The Institute of Supply Management (ISM) released their month survey at a 9 month high of 49.3%–anything under 50 indicated contraction in manufacturing while above is expansion. Kind of ‘Goldilocks’ I guess.
GDPNow which is calculated by the Atlanta Fed is now showing growth of 2.4% in the 4th quarter of 2024 which is trending lower–which has been the case since mid December. The Atlanta Fed calculates this number every business day with new data. The data can be seen here.
My weekly conclusion is that the most recent economic data is not hot and not cold–Goldilocks, but a number of items bear watching.
Tim, wage inflation is hitting in the SF bay area. We see government employee union contracts locking in 30-50% raises over the next 5 years. I think that will continue to trickle through the economy here.
Of course, in the peoples republic of California, the press reports that something like 96% of job growth has been in government jobs (150K new gov. jobs in last two years out of a total of 156K total jobs).
We also have this crazy race by politicians to outdo each other in raising the minimum wage in some segments of the economy (some fast food workers are going to $25/hr, hotel workers in some areas are going to $30/hr. etc.). It certainly is raising prices and distorting the labor situation.
Backward looking, CBS said 2024 for Ford and GM was their best sales year in 5yrs
Private–yes I see plenty of wage inflation, but at least in theory if we only create a few new jobs this should be going away–in theory at least.
I am fairly new to this so if this is in the wrong place please let me know. I know there is ongoing discussion about ECC and EIC. As mentioned EIC has term preferred and ECC has baby bonds
I have ECCW. My question is what has been the history of CEF’s defaulting on debt or not paying redeeming preferred stock.
Given the coverage and regulatory process how likely is it that ECC would not be able to pay off its Baby Bonds and what would the scenario have to look like for that to happen
Thank you
Never. With the current regulatory environment CEF’s have never defaulted on a preferred security. They are required to have a certain level of coverage for these securities…
Appreciate your post.
I like using yardeni information every once in a while to get an idea of what is going on. You can find it here: https://yardeni.com/our-charts/
So for example I will pull up some information like the below, Figure 1.
https://yardeni.com/charts/sp-500-sectors-forward-metrics-fundamentals/
It is clear that “information technology” companies are really carrying all the weight for the SP500. Just exactly how long can the spending companies are doing really last? Meaning companies like Nvidia surely cannot expect their current gravy train to continue for a decade. Can MSFT expect to sell cloud endlessly to companies who would prefer to have those costs more controlled and not always rising at such a fast pace? I am sure everyone is aware of the MAG 7, AI, cloud computing, etc…
But what about all the other sectors of our economy? All of those besides health care look pretty normal to me but the growth is quite slow. Are “we” really doing that well? Do all the other sectors really have a ton of cash on hand to take advantage of what the “information technology” companies expect them to spend to make their investments worthwhile?
If I had to summarize things right now in a single word I would use the word “fragile”. I would not be thrilled with the idea of taking a lot of money and putting it to work in the stock market right now.
Fc, I worked for a flooring store for about a month in the GFC. The owner brought in a business advisor to evaluate the business and was told he needed to update the accounting and sales program he was using. He didn’t want to spend the money to buy a product and have an IT guy install and tweak it for his business like his last operating software. He decided to go what he thought was the cheaper route and do a subscription service with limited IT service included. Then he found out he had to pay additional licensing for each salesman he added, if he went over his hours allotted for IT service he had to pay more then he realized he had to renew the subscription annually.
He quickly went back to buying a program outright and hiring a local IT guy to install it.
My last comment was a little stale coming from an experience over a decade ago.
I have to ask what business owners and other professionals here are seeing in their worlds. Being semi- retired I am not always in the office on conference call days but I do get the reports. 2024 seemed like a good year overall except the end of the 3rd qtr was soft. There were months that seemed like they were good but we actually showed a loss so I assume expenses were high or margins were low.
Last conference call we were told 2025 could be a make or break it year. Main goal was set to increase sales and margin wasn’t talked about. We are affected by the cost of materials and we fall into the manufacturing group. Obviously we are not in a growth industry so outside increasing the share of the market and raising prices we are limited to growth.
We depend on 3 main segments of the economy for business. First is Healthcare, second is Government, last is commercial and residential building.
Interest rates affect us mainly from the cost of borrowing for us and our customers.
I like Fc’s comment fragile.
There seems to be a lot of confidence that interest rates can be cut, that taxes can be cut and government spending can be cut, regulations on businesses can be cut and at the same time the economy can be made to grow and inflation be kept in check as this is done. The stock market will benefit and reach new highs and the economy will benefit and so will the bottom 50% of the people in the US who showed they were unhappy in the last election.. Yet consumer and business and government debt are all time highs and we are seeing growing defaults in consumer and business debt. We are not yet at all time highs but the wave is getting bigger.