Week in Review: April 1-5

Construction Spending, Beef, & More

Last week, I wrote about beef prices (and how lawmakers don’t care about lowering them). Now, there’s an outbreak of avian flu in dairy cows (and at least one human farmer), which is ominous for both steak prices and public health.

Beef-related news aside, this week brought us updates on construction spending, manufacturing, jobs (see Zack’s post on that, free for all subscribers), and a whole lot more.

Monday

Construction Spending

Construction spending fell in February. Nonresidential registered an especially poor month, with spending declining 1.0%. Declines were widespread. Among 16 nonresidential subsegments, only the transportation category experienced enhanced spending in February. Despite a slow start to 2024, nonresidential spending is still up more than 14% over the past year.

 Residential spending continued to climb in February due to progress in the single-family segment (+1.4% for the month) and despite a flatlining multifamily segment (-0.2%).

ISM Manufacturing PMI

The U.S. manufacturing industry grew in March, ending a streak of 16 straight monthly contractions that dated back to September 2022, according to this survey of industry managers. After more than a year of subdued performance on the goods side of the economy, this is an encouraging development. Last year, retailers and wholesalers spent much of their time dealing with troublingly high inventory levels. That suppressed orders. Now orders are starting to flow. Very good news for U.S. economic momentum.

TSA Checkpoint Travel Numbers

The number of passengers screened by TSA fell slightly after what was for many spring break. Travel volumes remain about 7.5% above 2023 levels.

Tuesday

Gas Prices

Gas prices stayed at $3.64/gallon, matching the highest price over the past 5 months. Gas prices will likely continue to rise for the next month or two as we head into spring. Oil prices are now in the high-80s and that will be reflected in gas prices during the weeks to come. But the data seldom move precisely as one would expect. For instance, consider . . .

Diesel Prices

Diesel prices fell and are now back below $4.00 per gallon (by just $0.004) for the first time in two months.

Job Opening and Labor Turnover Survey (JOLTS)

There were 8.8 million job openings on the last day of February. That’s 5.3% of all positions, which is the same as in December and January; well below the 6.0% job opening rate observed in February 2023, but well above the pre-pandemic rate of 4.4%.

The quit rate—the share of employees who quit their job—stayed at 2.2% for a fourth consecutive month. That’s lower than at the start of the pandemic and way lower than the quit rate from 2021 through the first half of 2023, when between 2.5% and 3.0% of workers quit their jobs every month. Economists generally interpret lower quit rates as an indication of a weakening labor market. People tend to quit their jobs when they think they have similar or better options elsewhere. But as I said to Zack, “why would someone quit when their employer is already giving them all they want -- more pay, more flexibility, etc.” In other words, many employers have simply capitulated, and that may be a reason for fewer quits lately.

The hiring rate—monthly hires divided by all jobs—has also fallen back below the pre-pandemic level after a few years of being higher than normal.

This suggests that the labor market has settled down. Fewer quits, fewer hires, at least according to this survey. But as Zack pointed out to me, “still lots of job openings, which means the demand for additional workers is still there.” That’s right, Zack, and Friday’s data tell us that you are on point. But before we get to Friday, let’s talk about . . .

Wednesday

ISM Services PMI

The services side of the economy expanded for the fifteenth straight month in March, according to this measure, though at a slower rate than in February. Prices increased at a much slower rate than in February. It would be great if that’s a sign of slower inflation to come, but I don’t think this has much predictive power.

ADP Employment Report

Private employers added a very strong 184,000 new jobs in March, according to ADP. This is less important than the BLS jobs report on Friday, but not meaningless (ADP is a very large payroll processing firm). The only segment that lost jobs for the month was professional and business services—it’s tough out there for consultancies like McKinsey and Deloitte.

Mortgage Applications

Mortgage applications fell again this week. Just not much appetite for roughly 7% rates.  

Thursday

Mortgage Rates

Mortgage rates were essentially flat this week, with the average 30-year fixed rate inching up to 6.82%.

U.S. Crude Oil Production

U.S. oil production remained at 13.1 million barrels per day for the fourth consecutive week. That’s still strong production, just slightly below the record 13.3 million barrels per day.

Jobless Claims

Initial jobless claims increased to 221,000 during the week ending March 30^th. That’s the most since the end of January but is still very low overall. Continued claims for unemployment insurance fell sharply for the week.  

Friday

Jobs Report

Employers added 303,000 jobs, the unemployment rate fell to 3.8%, and the details of the report are even better (read Zack’s longer post on this report from earlier today). It was a fabulous report - so good that it lays any near-term recession chatter to rest, just like all talk of a Buffalo Bills’ Superbowl has also been laid to rest in peace.

Links of the Week

The U.S. would be insane to go it alone on trade and manufacturing (Noahpinion)

The economics of American lotteries (The Economist, worth blowing your free trial on)

Immigration and the U.S. economy since the pandemic (Briefing Book)

Final Thoughts

After this week, my outlook for the economy is: Much improved

There are several factors that have helped to extend the current economic expansion cycle. At the onset of the cycle, improvement largely related to economic reopening and supply chain improvements. But as those factors became less important and interest rates ramped higher, many of us thought that recession was inevitable. 

What I failed to foresee was the consumers would keep spending right through those higher interest rates, racking up massive amounts of credit card debt in the process, that the federal government would keep spending like we were still in crisis, and that the labor force would expand so briskly. Turns out that immigration is helping to pump up both demand and supply. A recent Brookings report indicates that many employers are going ahead and hiring undocumented people.

I’m not here to say if that’s good or bad. Your call. But it has helped enterprises expand their capacity to supply, and that along with other factors has the economy humming as we head toward mid-2024. At this point, for there to be a recession over the next year, we either need a Black Swan event (e.g., pandemic, Taiwan), or a significant financial market correction.

Looking Ahead

Next week is all about the CPI data (inflation) on Wednesday.