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Week in Review
Weekly Economic Indicator
These categories will help to understand how real GDP effected over the past week
Initial unemployment insurance claims
Claims could become volatile in July, when automakers typically idle plants to retool for new models. But these temporary plant closures do not always happen around the same time, which could throw off the model that the government uses to strip out seasonal fluctuations from the data.
This is not particularly well know so I wonder how market participants will react to unemployment news over the next 2 to 3 months. Will there be a significant drawdowns in the stock market?
Continuing unemployment insurance claims
Federal taxes withheld
The total amount of federal taxes withheld as of June 29, 2023 was $3.8 trillion, an increase of $1.2 trillion from the previous year. The largest source of federal tax withholding was from individual income taxes, which accounted for $2.5 trillion of the total. Corporate income taxes accounted for $900 billion of the total. Other sources of federal tax withholding included excise taxes, social security taxes, and Medicare taxes.
The increase in federal tax withholding was due to a number of factors, including the strong economy and the passage of the American Rescue Plan Act of 2021. The strong economy has led to higher wages and salaries, which has increased the amount of income subject to federal income tax withholding. The American Rescue Plan Act of 2021 increased the child tax credit and the earned income tax credit, which also led to higher amounts of federal tax withholding. The increase in federal tax withholding is expected to help to reduce the federal budget deficit.
https://fsapps.fiscal.treasury.gov/dts/files/23062900.pdf
Redbook same-store sales
Walmart reported same-store sales growth of 3.0% for the four weeks ended July 2, 2023. This was below analysts' expectations of 3.3%.
Target reported same-store sales growth of 2.2% for the four weeks ended July 2, 2023. This was also below analysts' expectations of 2.4%.
Costco reported same-store sales growth of 12.1% for the four weeks ended July 2, 2023. This was above analysts' expectations of 10.8%.
Home Depot reported same-store sales growth of 10.1% for the four weeks ended July 2, 2023. This was above analysts' expectations of 9.3%.
Lowe's reported same-store sales growth of 5.2% for the four weeks ended July 2, 2023. This was below analysts' expectations of 5.5%.
Overall, same-store sales growth for large US general merchandise retailers was mixed in the most recent week. Walmart and Target both reported below-expectations growth, while Costco and Home Depot both reported above-expectations growth. Lowe's reported growth that was in line with expectations. The mixed results could be due to a number of factors, including rising inflation, supply chain disruptions, and the ongoing war in Ukraine. It is still too early to say whether the recent slowdown in same-store sales growth is a sign of a more significant trend.
Consumer Index
The Conference Board's Consumer Confidence Index rose to 109.7 in June, its highest level since January 2022.
The Expectations Index, which measures consumers' short-term outlook for the economy, remained below 80, which is the level associated with a recession.
Number of consumers who expect a recession in the next 12 months fell from 73.2% in May to 69.3% in June.
Inflation is a major concern for consumers, but it's not clear when prices will start to come down.
The war in Ukraine is also a worry, as it could lead to higher energy prices and disruptions to supply chains.
Consumers are feeling more confident, and recession fears are easing. However, there are still some challenges ahead, and it's important to stay vigilant.
It's not all roses for the economy
So, what's giving consumers confidence? The labor market is one reason. The number of consumers who say jobs are plentiful rose to 46.8% in June, up from 43.3% in May. And consumers' income expectations are also improving. In June, 16.9% of consumers said they expect their incomes to increase, up from 18.9% in May.
Of course, there are still some clouds on the horizon. Inflation is a major concern for consumers, and it's not clear when prices will start to come down. And the war in Ukraine is also a worry, as it could lead to higher energy prices and disruptions to supply chains.
The June Consumer Confidence Index report is a positive sign that the economy is looking up. Consumers are feeling more confident, and recession fears are easing. However, there are still some challenges ahead and consumers remain a little bit worried. They're like a person who just got a raise, but they're also worried about getting laid off. Overall, though, they're feeling pretty good and that's good news for the economy!
***Source: June 2023 Consumer Confidence Survey®***
The American Staffing Association Staffing Index
In June 2023, the ASA Staffing Index showed a slight increase of 0.4% in staffing employment during the week of June 12-18. However, staffing companies faced obstacles like temporary-to-hire conversions and a holiday that hindered further growth. Compared to the same week last year, staffing jobs were 6.2% lower. On a brighter note, new starts in the 24th week of the year grew by 1.2% from the previous week, with about a third of staffing companies reporting gains in new assignments. Despite these positive signs, the four-week moving average of the ASA Staffing Index remained steady at 99, and temporary and contract staffing employment for the four weeks ending June 18 was 5.9% lower than the same period in 2022. Tim Hulley, ASA's assistant director of research, humorously remarked that staffing employment had picked up recently after a lull over the Memorial Day weekend, but it still lagged behind 2022 levels. The June monthly employment situation report by the U.S. Bureau of Labor Statistics, which includes data from this week, is scheduled to be issued on July 7. The ASA Staffing Index provides near real-time insights into staffing employment trends and has historically been a coincident economic indicator, according to ASA research.
Raw steel production
The steel industry is hot right now.
Production is up, but prices are still high.
The war in Ukraine is to blame, but the construction industry isn't helping.
And the supply chain disruptions aren't making things any easier.
So if you're looking to build something, be prepared to pay up. Steel prices are through the roof, and there's no sign of relief in sight.
But hey, at least the steel industry is doing well!
U.S. railroad traffic
Rail carloads were on a roll early last year, but then they hit the brakes.
They were positive in Q1 2021, but then they started to fade to negative in Q3.
By the end of the year, they were in the red, and they've been there ever since.
In recent months, they've been hovering near the zero line, but this week they were neutral again.
Harpex was also on a tear early last year, but then it crashed.
It reached near-record highs in Q1 2022, but then it plummeted to new lows.
BDI followed a similar trajectory, but it has rebounded sharply in recent weeks.
I'm not sure what to make of all this.
On the one hand, the negative rail carloads and Harpex indexes suggest that demand is slowing down.
On the other hand, the rebounding BDI index suggests that demand is picking up.
Maybe it's just a case of supply and demand being out of whack.
There's been a huge overbuilding of ships in the last decade, which is suppressing freight rates.
But at the same time, demand for goods is still strong, which is keeping prices from falling too far.
So who knows?
Maybe rail carloads will turn positive again soon.
Or maybe Harpex will hit new highs.
Or maybe BDI will continue to rebound.
The only thing I know for sure is that it's going to be an interesting ride.
U.S. fuel sales to end users
oil traders are having a tough time. Many are https://www.globalwitness.org/en/blog/the-russian-oil-laundromat-fueling-americas-driving-season/
Oil trader Pierre Andurand
U.S. electricity output
electrical generation by solar (including small-scale distributed systems) grew by 10.24%
driven in large part by growth in "estimated" small-scale (e.g., rooftop) solar PV whose output increased by 24.88% and accounted for nearly a third (32.33%) of total solar production.
electrical generation by wind increased by 1.97%
Wind and solar together provided 17.91% - or over one-sixth - of the nation's electrical output in the first third of 2023. That was more than coal's share (14.98%) and close to that of nuclear power (19.17%)
Inflation
Consumer spending edges up, but inflation still high
Consumers spent a little bit more in May, but inflation was still high. The Commerce Department reported consumer spending rising 0.2% in May, after a revised 0.6% increase in April. The spending increase was driven by higher prices for goods, as spending on services fell slightly. Inflation remained high, with the Consumer Price Index rising 8.6% in May from a year ago, the highest level in 40 years.
The spending increase was not enough to offset the inflation increase, and as a result, real disposable income fell 0.1% in May. This is the first decline in real disposable income since December 2021.
The Federal Reserve is expected to continue raising interest rates in an effort to cool inflation. However, it is unclear how much this will help, as the war in Ukraine and supply chain disruptions are also contributing to high prices.
Inflation is a real pain in the neck, but consumers are still spending
Inflation is still high, but consumers are still spending money. According to the Commerce Department, consumer spending rose 0.2% in May, after a revised 0.6% increase in April. The spending increase was driven by higher prices for goods, as spending on services fell slightly.
So why are consumers still spending money even though inflation is so high? There are a few reasons. First, many consumers have built up savings during the pandemic. Second, wages are rising, albeit slowly. And third, some consumers may be feeling a sense of urgency to spend money before prices get even higher.
Of course, not all consumers are spending money. Some are cutting back on discretionary spending, such as eating out and entertainment. And some are even saving more money. But overall, consumers are still spending, albeit at a slower pace.
The Federal Reserve is expected to continue raising interest rates in an effort to cool inflation. However, it is unclear how much this will help, as the war in Ukraine and supply chain disruptions are also contributing to high prices.
In the meantime, consumers are just trying to make the best of a difficult situation. They are still spending money, but they are being more careful about where they spend it.
https://www.wsj.com/articles/consumer-spending-personal-income-may-2023-4a3fb7de
https://www.reuters.com/markets/us/us-consumer-spending-edges-up-may-inflation-still-high-2023-06-30/
Favorite Economist
View sector and industry performance drilldowns as separate signals that relate to the current business environment. By pulling all of these signals together, you can gain a better understanding of the overall market and identify potential investment opportunities.
I am no Warren Buffett (WEB), but I would argue that he conducted these analyses far more often than he would admit. WEB is a genius whose didactic memory probably operated as an unhired analyst in his mind. I am no genius, but I operate as a value trader. However, I believe that this approach may be a subtle quirk that is unbeknownst to WEB and an Achilles heel to most value investors.
As the investment genius Stanley Druckenmiller has observed, "In the investment world, those who focus on the macro tend to be right more often than those who focus on the micro."
I share Druckenmiller's macrospective and believe that it is important to take a step back and look at the big picture before making investment decisions. By doing so, you can increase your chances of success in the long run.
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