Market Insights / 05.16.2024

Shapiro – May 2024 Market Insights

Shapiro – May 2024 Market Insights - Image

May 16, 2024



The reports on the economy keep changing at a rapid pace. Monthly I report on my favorite economic acronyms, CPI, PPI, PCE and ISM. I also report durable goods, housing, automotive, labor, wages, and others. It can be very confusing because the data changes rapidly, like the weather, and can lead to contradictory conclusions.

David Mericle, Chief US Economist for Goldman Sachs Research, said: “Getting the direction of the economy right is no guarantee of getting the inflation forecast right.” He followed up with:” One should not expect all of the fluctuations in inflation to have a satisfying economic explanation.” So, if this sounds confusing from an economist with a Harvard PhD, don’t look for the answers from a third-generation junk peddler.

For the decade starting in 2010, economics were somewhat boring and predictable. GDP and inflation were both around 2% for most of the decade. The pandemic changed everything, and the aftermath continues.  In June of 2022, inflation rose to 9.1%. Real GDP was 1.9% in that year as well. At the start of 2023, most economists were forecasting a recession, which is 2 consecutive quarters of negative growth. Instead, 2023 GDP was up 2.5%.

The Feds and most economists’ foundation for measuring inflation is based on supply, demand, and consumers expectations. The supply side has improved from the pandemic shortages. Consumer demand has been good with plentiful jobs paying higher wages. Consumer expectations for inflation are still close to 2%. This expectation is mainly based on the CPI and also includes inflation questions from the University of Michigan’s Survey of Consumers and other extraneous factors. Close to 2% inflation expectations sounds low to me, but who knows?

The macro trends are:

  • Real GDP growth came in surprisingly slow in the first quarter, growing at a lukewarm 1.6% annual rate versus a consensus expected 2.5% pace.
  • Core GDP increased at a healthy 3.1% rate in Q1, with consumer spending growing at a 2.5% annual rate, fixed business investment growing at a 2.9% rate, and home building up at a 13.9% rate. Core GDP includes consumer spending, business fixed investment, and home building, while excluding government purchases, inventories, and international trade, the latter of which are very volatile from quarter to quarter.
  • Employment has increased by 8 million people over the last 6 years, which is a record high. The unemployment rate is 3.9%. It’s the 27th consecutive month that the jobless rate has been below 4% — matching the longest stretch since the 1960s.
  • Wage growth has slowed sharply for most Americans in the first 4 months of this year to about the pre-pandemic average annualized rate of 3%. That is down significantly from 5% measured from the second half of 2022 when inflation spiked, through 2023. That 3% is consistent with a 3% inflation rate.
  • Average hourly earnings rose just 0.2% in April, down a tick from the prior month. Over the past three months, they rose at a 2.8% annualized rate — sharply lower than 4% in March.

We’ll have to wait and see if the trend is our friend.



Inflation is somewhat lower. It will just never feel like it. 

Q1 inflation has come in stronger than anticipated depending on whether you use CPI or Personal Consumption Expenditures, PCE, used by the Fed. PCE has been lower than the various CPI measures. The Fed will be closely watching the employment situation. If job growth continues its moderate growth along with wages, the Fed may begin to lower interest rates sooner than later.

  • The Consumer Price Index (CPI) for April was slightly better than expected. The core CPI gauge, which excludes volatile food and energy prices, was 0.3% for the month and on an annual basis was down 3.6% from 3.8% last month. This annual pace was the lowest in 3 years. The advance in the CPI was driven once again by services like car insurance and medical care.
  • The super core CPI measure, services prices excluding energy services and housing costs, that the Fed has highlighted, fell to 0.4% in April, the smallest increase this year. This was driven by higher prices for motor vehicle insurance (+1.8%) and financial services (+2.5%).  In the last 12 months, this measure is up 4.9%.
  • Personal Consumption Expenditures (PCE) is the Fed’s preferred inflation measure. March was reported at the end of April. It rose 0.3% in March, bringing the twelve-month comparison to 2.7% (versus 2.5% last month), and has risen at a 4.4% annual rate over the past three months. Core prices, which exclude the ever-volatile food and energy categories, also rose 0.3% in March and are up 2.8% versus a year ago. The Fed has prioritized a subset of inflation dubbed the “Supercore,” which is services only (no goods), excluding food, energy, and housing.  That measure rose 0.4% in March and is up 3.5% versus a year ago (versus 3.4% last month).
  • The Producer Price Index [PPI)] for April rose 0.5%, topping the 0.3% forecast. Excluding volatile food and energy, core producer prices gained 0.5%, a faster rate than the 0.2% expected. Here is the good news. March’s PPI was revised down to a 0.1% decline, from a 0.2% gain. Part of April data that is used to calculate the PCE, which is the Feds preferred measure for inflation, was better. Among those, the cost of hospital outpatient care fell 0.1% and airfares dropped 3.8%. Prices for physician care rose modestly. The PPI was generally positive.


Fed Chair, Jerome Powell said on May 1, “Inflation is still too high, further progress in bringing it down is not assured, and the path forward is uncertain,” He could have just said VUCA, Volatility, Uncertainty, Complexity and Ambiguity. Forecasting inflation and this economy is a bit like rolling the dice at a craps table, everything changes very quickly.



This trend is still mainly positive 

The ISM Manufacturing index dropped to just below expansion to 49.2 from 50.3 last month. Activity in the US manufacturing sector has now contracted for 17 out of the last 18 months.  Both demand and production were responsible for the drop in the overall index, with the index for production softening to 51.3 and the new orders index falling back into contraction territory at 49.1. The ISM Non-Manufacturing service index missed consensus expectations and fell into contraction territory for the first time in 16 months.

ITR is a highly accurate economic forecaster that uses a 12-month moving total or average. They are forecasting US Industrial Production is likely to undergo mild contraction this year. This will be followed by growth next year.

  • Orders for core capital goods (excluding aircraft and transportation), rose 0.2% in March after being up 0.5% in February and are up 1% in the last year. Commercial aircraft was up 30.6% in March, while motor vehicles and parts rose a solid 2.1%.
  • Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, rose 0.2% in March and were up at a 2.0% annualized rate in Q1 versus the Q4 average.
  • New home sales, always volatile, rose 8.8% in March and was the largest gain in more than a year. The good news for potential buyers is that the median sales price of new homes has fallen 13.3% from the peak in 2022. Mortgage rates had been surging again recently due to a recent string of bad inflation, but now are dropping. Meanwhile, existing home sales fell 4.3%.
  • Car and light truck sales continue to be steady at about 15.7 million units so far this year.
  • U.S. Nonresidential Construction spending in March dipped slightly but is still near its high.
  • The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from the duplicate accounts across our ten locations and a diverse industrial base. April volumes were the same as March and were right on track with our twelve-month trailing average.



Overproduction verses tariffs 

US imports from China grew from $100 billion per year in 2020 to $500 billion in 2022. Most of the growth has come from consumer electronics such as phones, computers, monitors, along with clothes, toys and furniture manufactured in China. Because these goods cost much less to produce in China, it kept inflation low for many years. It also wiped out the furniture and clothing manufactures here. Fortunately, other industries have grown in the U.S., and we are still strong.

China relied on its housing and infrastructure construction to grow its economy into the world’s second largest economy. The pandemic and housing bust has significantly hurt their economy. China is unwilling to correct its housing problems. Their consumer’s confidence is low, and consumers are fearful. Their population is growing older, and the one child policy has reduced consumption and hurt their economy. China now believes it can export its way out of this problem. The rest of the world knows that this policy will damage their economies and will therefore put in tariffs to counteract this.

“When the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question,” US Treasury Secretary Janet Yellen. On her recent Beijing trip, Yellen warned that China is now simply too large for the rest of the world to absorb its ballooning industrial output, which U.S. officials say is supported by lavish subsidies and state-directed loans.

“If there are not trade barriers established, they [China] will pretty much demolish most other car companies in the world,” Elon Musk said in January. Biden is close to announcing a 100% duty on Chinese EV cars coming into the US, although this is not a current problem. Ed Meir points out that Chinese EV could be produced in Mexico and brought into the US through NAFTA, but that remains to be seen. The Biden administration is also preparing to raise tariffs on clean-energy goods from China in the coming days.

Trade wars can be nasty. There are many strategic commodities needed by the U.S. that are predominantly mined in China. These commodities, like lithium and others, are critical for defense and manufacturing. When economic issues cannot be resolved, bad things can happen. That is the way most wars begin.

Meanwhile, the official PMI (Purchasing Managers Index) fell slightly in April as did the Caixin. Both are just above 50, the expansion line.



Russian sanctions and demand drive prices 

Alcoa CEO William Oplinger on April 17 said that the spike in prices was caused not only by the LME sanctions on Russian metal but also demand. “Alcoa is seeing strong demand across the board…in just about every industry and every region that we serve with the exception of European building and construction.” The Aluminum Association announced that the demand for the first 2 months of this year for mill products and ingot was up 5.9% for the U.S. and Canada. Mill products alone were up 2.5%.

I attended the ReMa, recycled materials association, meeting in April. CRU, a well-respected research firm presented an analysis of the aluminum industry. Some of the highlights presented were:

  • North American aluminum demand is increasing. Annually it was down 15% in 2023 from 2022. It will be level in 26 and up 11% by 2028.
  •  Total domestic production 5-year annualized growth is over 7%
  •  Over 12 new recycling investments by mills, secondary and billet producers are adding over 2 million tons per year capacity and are coming on stream in the next few years. This expansion is unprecedented in the last 40 years.

These are the latest forecasts for prime aluminum courtesy of Harbor.

LME ALUMINUM CASH PRICE FORECASTS ($/ton; annual averages)

All May nonferrous prices rose substantially. Prime aluminum was up over 13 cents per pound. Prime aluminum scrap rose 11 to 13 cents. Secondary aero turnings were up 6 cents. Copper was up 50 cents a pound and nickel was up 70 cents. Scrap steel and stainless steel were generally flat.

The other old expression in the industry is “sell in May and go away.”  We will see if that trend is still your friend soon.



P.S. Maddie Carlson’s Sustainability Insights will be flying on its own this month. Please look for it at the beginning of next week! I am so excited about this as it aligns with Shapiro’s purpose of Making the Planet Better Together. Shapiro has launched Circular by Shapiro ( to provide the environmental metrics and data needed to reach sustainability goals.


“Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.”  – Ronald Reagan 

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

Bruce Shapiro

Thanks for Reading.
Not a subscriber? Sign up below.