TIME FOR A LOOK AT THE NATION’S ECONOMY

…Old Glory and the US Economy

It’s hard to say if the economy is strong, or on the verge of a fall

Every once in a while, I put on my US Economy Hat and take a look at the economic messages that we are getting from the nation’s businesses.  When I do that, I usually look at six areas of the business economics.

Those six areas include: Manufacturing, Trucking and big Truck sales, Jobless claims, Temporary Hires, Business Spending, and finally, Bank Lending.

Let’s take them one by one:

MANUFACTURING:

When the PMI (Purchasing Manager’s Index) is above 50, that usually means that the economy is expanding.  The PMI has been well above 50 throughout 2017 & 2018.  But staring in 2019, the PMI started down.  It has continued heading down now for 6 months.  Today it is only one point above 50 at 50.1. The president’s trade war with China is taking its toll and the concern that it’s over-due for a market correction.  More than one analyst has said that: “Trump may be about to face his biggest test yet on the US economy.”

TRUCKING & BIG TRUCK SALES:

Nearly all goods sold in the United States touches a truck at some point, which is why trucking shipment data can be highly revealing.  After a stellar 2018, shipments have plunged during the past six months.  This is according to the Cass Freight Index.

“Bottom line, more and more data is indicating that this is the beginning of an economic contraction.  If a contraction occurs, then the Cass Shipments Index will have been one of the first early indicators once again,” said Donald Broughton, founder of Broughton Capital which is the lead analyst for the Cass Freight Index.

As to big truck sales, it’s a more confusing issue.  While trucking shipments do look gloomy, another way to gauge the health of the trucking industry is to look at sales of the big 18-wheeler trucks. That data looks a lot better, which would seem an indication that the industry is still in a good enough place for companies to want to invest for the future.  “So far, the data I am looking at does not suggest the economy is slowing,” said Brian Wesbury, chief economist at First Trust Portfolios, who likes to watch large truck sales and initial jobless claims.  But Boris Strbac, owner of Star Trucking in Milwaukee, says a lot of trucking company owners wanted to buy trucks last year, but couldn’t get them until this year because of such heavy demand.  He expects sales to drop off later this year.  Strbac stated: “I made a mistake. I bought four trucks recently. I regret that now, believe me.”

JOBLESS CLAIMS:

Hiring has been one of the strongest parts of the economy going back to 2014. If you recall, before Trump took office, President Obama’s increase in the jobs area was on-going right after he took office.  Economists closely watch how many Americans file for unemployment insurance, because that data comes out every week and is often the first indication of trouble.

Even though new jobless claims remain low today, there has been an uptick recently, reaching a seven-week high last week. Still, most economists say unemployment claims need to reach at least 250,000 a week before there’s any concern.  However, as of last week, the latest data showed 227,000 new claims just last week.  The coming weeks need to be watched closely.

TEMPORARY HIRES:

The other way to gauge how eager companies are to hire people is to look at how many temporary employees they bring on. These workers are usually the first to go if there’s any sign of a slowdown, since they are easy to let go of and they have few ties to the company or management.

The Labor Department measures temporary hires every month. So far in 2019, temporary hiring has seriously slowed, compared with last year’s, yet it hasn’t turned negative. Temp hiring appears to be consistent with the idea that the economy is in fact slowing gradually, but it is not nose-diving as yet.

BUSINESS SPENDING:

Business leaders are definitely nervous, according to most metrics of sentiment in the corporate sector.  But the question is how is that translating into decision-making? This year evidence is growing that companies are pulling back on investment spending.

Business typically tapers their capital spending when they are less certain about the future, making it a closely watched economic gauge. Like temporary hires, business spending has yet to turn negative but it is showing a clear slowing path.

BANK LENDING:

While many watch the daily gyrations of the stock market, I definitely avoid that approach.  A better gauge of how Wall Street and the broader economy are interacting is what’s happening with bank loans. Economists pay close attention to whether banks are tightening lending standards, a sign of growing concern, or easing them.

Lately, banks have actually been easing lending standards, a definite indication that most banks don’t think a big downturn is imminent.  But this is also due to a bunch of mixed signals.

Matthew Luzzetti, chief US economist at Deutsche Bank, says all of these mixed signals about the economy lead him to predict “a decline in domestic growth momentum in the second half of the year,” but he is careful not to say there will be a “recession.”  As it turns out, most of the US banks agree that all the signals are saying that the signals are all mixed and that usually means to stay on top of the signals and prepare to move quickly if the downturn becomes a reality

So, where does all of this put us and the US economy?

Most of those that deal with following the nation’s economy on a regular basis say the same thing.

They say it has been way too long for the economy to not have some kind of correction.  In addition, with someone like Donald Trump as the US president, he could personally dynamite the US economy with his ability to start a war overnight, and for someone that believes in tariffs and that doesn’t believe in climate change, anything could happen to the US economy at any given time.

Everyone is saying, keep an eye on all areas of the economy and be prepared to move at a moment’s notice.

Others are saying that if you are in need of financing and you are in a position to obtain a low interest loan, this might be the best time to get one.  Because, if the economy goes into the toilet, interest rates will soar and the banks will stop lending to the average American home owner.

So, as of the first of July, 2019, that’s the story of the US economy.

Copyright G. Ater 2019