/ 01.12.2024

Shapiro – January 2024 Market Insights

Shapiro – January 2024 Market Insights - Image

January 12, 2024

CONSUMER BUYING PRICES

IF THIS IS A BAD ECONOMY, SIGN ME UP FOR MORE!

The experts really blew the 2023 forecast! In 2023 most economists said a recession was 90 – 100% certain. Interest rates were forecasted to go and stay higher for a long time. Inflation was going to take years to normalize. The stock market was going down. Wages were going to spiral out of control and unemployment was going to rise to 5% and above.

Federal Reserve Chair Jerome Powell said at a news conference in December of 2022 that labor market conditions will experience some softening in 2023, and “I wish there were a completely painless way to restore price stability. There isn’t. And this is the best we can do.” By the way, the Feds forecasts are wrong fifty percent of the time.

How could they be so wrong?

The reality for 2023 was that interest rates did continue to rise to 5.50%. However, not only was there not a recession, but the economy grew at about 2.4%. Employment remained strong and that trend continues. Inflation fell from over 9% in June and is approaching the Fed target of 2%, on a previous six-month basis. Wage growth was lower than inflation. Stocks are near all-time highs. Gas prices continue to fall along with mortgage rates. Even with consumers saying we had a “bad economy,” consumer spending was very strong. If this is a “bad economy” sign me up for more!

We know economists and other supposedly “smart” people were wrong with their 2023 forecasts. Countless books, articles and papers will be written for years to come analyzing how these forecasts were simply wrong.

So, what about this year’s economy? For 2024 most of the forecasts predict a soft landing, which means the economy will slow down without a recession. GDP will grow close to 2%. Inflation will continue to go down, as will interest rates, while employment remains solid.

Now it’s your turn. The mailing list for Market Insights is well over three thousand and growing and a useful source to collect data. I have a request. After reading the following segments on Inflation and Manufacturing, I am interested in your point of view. The future is always filled with uncertainty. Please consider the existential effects of wars, terrorist attacks, floods, fires, droughts, hurricanes, tornadoes, and other disasters that affect our planet.

Click on the button below to predict the 2024 economy

  • Soft Landing – Economic slowdown avoiding recession
  • No landing – Economy is strong and avoids recession
  • Recession

The results will be revealed in my February Market Insights, and we can compare our 2024 forecast with reality at the end of the year.

INFLATION

The trend remains positive and bumpy

The Consumer Price Index (CPI) rose the most in three months in December to 0.3% up from 0.1% in November. The annual pace is 3.4% up from last year’s 6.5%. The Core CPI, excluding food and energy, rose in December 0.3% in line with expectations. Much of the inflation is still coming from housing, which makes up a third of inflation, and the services component. Consumer expectations for inflation for the next 3 years is 2.6%, the lowest since 4.2% in October 2021.  Former Treasury Secretary Lawrence Summers said he sees the potential for a soft landing in the US economy as inflation glides down while the labor market remains elevated. He was one of the first to forecast inflation.  He also said it would take years to bring it down. Things change.

The Producer Price Index [PPI] unexpectedly fell in December 0.1% from November and the core, excluding energy and food, was 0.0%.  From a year earlier, the overall measure was up 1%, while the core gauge rose 1.8%, the smallest advance since the end of 2020.  This report offsets the higher CPI report from yesterday. The figures may help shore up estimates for a softer PCE reading, which the Fed watches closely.

Personal Consumption Expenditures (PCE) is the Fed’s preferred inflation measure. The latest report at the end of December indicated November declined 0.1%, the first monthly drop in prices reported since April of 2020. PCE prices have been at 2.6% in the past year, but up at only a 2.0% rate in the past six months, and that is the Fed’s inflation target.  “Core” prices, which exclude the volatile food and energy components, rose 0.1% in November and are up at only a 1.9% annual rate in the past six months. However, they are also up 3.2% in the past year. If the PCE keeps dropping along with the CPI, we could start seeing more frequent drops in interest rates!

MANUFACTURING

Steady to slower 

The ISM Manufacturing index rose slightly in December to 47.0 from 46.7. It has been in contraction for fourteen consecutive months, the longest streak since the aftermath of the 2000-2001 recession. The index for new orders fell further into contraction territory in December and has sat below 50 for sixteen consecutive months, the longest streak since the early 1980s. Even with the backlog of orders decreasing, production has continued to be around 50. Something will have to change here.

Orders for core capital goods (excluding aircraft and transportation), which will lead to shipments in the future, were up in November by 0.5% after being even in October. Including transportation, which is particularly important to many of our manufacturers, orders are up 9.5% for the year. Orders for the year excluding transportation are trending at up 2%.

Shipments of “core” non-defense capital goods ex-aircraft (an essential input for business investment in calculating GDP and a leading manufacturer indicator) were down 0.1% in November after no change in October. Shipments are also trending down. On an annual basis, including transportation, shipments are up 2%.

Housing had its good and bad points in 2023. Housing starts and existing home sales were weak, while new home sales and home prices rose, despite the highest mortgage rates in twenty years. The forecast for this year is for modest gains in housing starts, sales, and prices. The gains should be concentrated in single-family homes. Also, the number of multi-family homes (think apartments and condominiums) under construction is already at an all-time high.

U.S. Nonresidential Construction spending continues to be strong and near its high.

New light-vehicle sales for December fell slightly to the 15.4 million annual average. With the average car price now $48.000 and 10% interest rate loans, it is no wonder they are falling. Still, 2024 car sales are forecasted to be 2% higher than the 15.5 million in 2023.

The Shapiro Nonferrous Scrap Activity Index, which tracks our daily purchases from the duplicate accounts across our ten locations and a diverse industrial base, fell in December and was 7% below our twelve-month trailing average.

CHINA

No real change 

China continues to have numerous problems. It faces a housing bubble with falling home prices and bloated real-estate companies facing bankruptcy. There is a dwindling labor force and a government policy that investors fear. Government and military leaders keep being replaced for not doing exactly what President Xi wants them to do. Because of this, consumer confidence will remain low for some time.

There continues to be a lack of strategy. The Zero-Covid policy was abruptly ended a year ago and it is estimated a million people died. There continues to be no clear-cut economic policy. Three of the main industries President Xi is giving priority to; electric vehicles, lithium-ion batteries, and renewable energy, account for only about 3.5% of China’s gross domestic product. Even with all its problems, their GDP continues to grow to nearly 5%.

China’s official PMI manufacturing index remains in contraction and fell again in December to 49 from 49.4. It has gone down eight of the last nine months. A similar gauge used for spending has also dropped into contraction. Surprisingly, the Caixin/S&P Global manufacturing private sector PMI index rose slightly again to 50.8 from 50.7.

METALS

Excitement in the aluminum market 

On December 18, there was a blast that damaged an alumina facility in Guinea, a major supplier to China for making aluminum. An earthquake in China in December also reduced power in an aluminum producing area that might reduce 300,000 tons of production until it is fixed. There was also talk about further US sanctions on Russian metal. Hedge funds, basically speculators, got back in the market in early December and bought 2.5 billion pounds [not a typo]. This reversed their short position to a 540 million pounds long position over the last three weeks of December. LME prices rose $300 per ton during this time. The demand side did not change and neither did the prime scrap prices.

Aerospace turnings rose four cents a pound in January with strong export demand. Copper and nickel prices were similar to December. Stainless steel prices rose slightly, and steel prices look to be adjusting from the December pricing this month.

I will be reporting the 2024 annual metal forecasts from the best forecasters in February. I enjoy collecting data as I write the Market Insights and look forward to reporting the results from the Market Insights 2024 Economic Prediction Survey. As the novelist, editor and professor, E. L. Doctorow said, “Writing is an exploration. Your start from nothing and learn as you go.” I learn something every month and hope that you do too.

 

P.S. I have added a new segment at the end of each month’s Market Insights. It aligns with Shapiro’s purpose of Making the Planet Better Together. Shapiro has launched Circular by Shapiro (circularasaservice.com) to provide the environmental metrics and data needed to reach sustainability goals. Below, you will find Sustainability Insights.

“Life’s most persistent and urgent question is, ‘What are you doing for others?” 

– Martin Luther King Jr

“Life is good. Family and health are precious.”

Bruce Shapiro

Sustainability Insights by Maddie Carlson

January 2024 Market Insights

The New Year is a common time for individuals and companies to set goals. With climate change encroaching, sustainability goals have become more critical. However, creating and achieving these goals requires effort and a strategic approach. As previously discussed, sustainability goals should be developed using data to get baselines, highlight inefficiencies, and guide measurable objectives. Once these goals are set, achieving buy-in from all company levels can be challenging. Convincing stakeholders, executives, and employees is difficult but needed for success. Here are some key approaches to connect the company to sustainable goals:

Educate, Envolve, Engage: Begin by educating your team about environmental issues and the importance of sustainability. Involve teams in environment program development and goal creation. Engage decision-makers with business cases and examples. Fostering a deeper understanding of sustainability will support the program’s success.

Align Company Values: Connect sustainability initiatives with company values and objectives. Highlight how these initiatives contribute to the overall mission and vision. Emphasize the alignment between sustainable practices and the company’s goals, whether enhancing operational efficiency, reducing waste, or fostering innovation. Employees who see the direct link between sustainability and the company’s success are more likely to support these efforts.

Communicate: Regularly communicate progress, successes, and challenges related to sustainability initiatives. Highlight the positive impact of these initiatives on the environment and the company. Ask for input and ideas to help navigate the challenges.

Setting sustainability goals with understanding and support results in meaningful environmental progress for companies and the planet.

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