Shapiro – November 2024 Market Insights

IT WAS INFLATION, STUPID

The title for the October Market Insights was from James Carville in 1992 telling Bill Clinton “It’s the economy, stupid.” For the 2024 election, I said “It’s inflation, stupid.” Americans, no matter what income level, reacted overwhelmingly to inflation and higher prices by voting for a change. Other reasons paled in comparison. Hello President Trump.

In October I also said, “The only thing we can all agree on in this election is that each side thinks they’re screwed if the other side wins.” Half the country is now elated, and the other half feels like there has been a death in the family or worse.

We have all just suffered through months of an ugly, contentious election. I always end my Market Insights with a quote. Since this is November and Thanksgiving, I am changing that.

“Double – no, triple – our troubles and we’d still be better off than any other people on earth.”

-Ronald Reagan

The US economy is the envy of the world. GDP was up 3% in the third quarter and up 2.8% this year on an annual basis. This growth came mainly from making people and businesses more productive.

We have had a very good economy since coming out of the COVID pandemic. Employment is strong. There is real wage growth, though few believe it. Inflation spiked and even though it has fallen to close to 2%, prices are still high compared to before COVID. In a recent Wall Street Journal poll, 62% of respondents rated the economy as “not so good or poor.” Even so, consumer spending is still very strong and will fuel continued growth.

On November 7, as expected, the Fed announced a 0.25% cut in interest rates. Powell has engineered a strong economic recovery even though interest rates went up to over 5%. Inflation has gone down from over 9% to close to 2% and employment is still very strong. Disposable personal income is greater than inflation, the stock market has been at a record high and our economy avoided the predicted recession. Most economists thought this was impossible, but it happened.

During the campaign, Trump said his plan was to fire Jerome Powell, who he appointed in 2018 during his first term. When Powell was asked during the interview on November 7, if he would resign, his answer was a resounding “No.” He was also asked whether Trump can fire or demote Fed Governors, Powell said, with emphasis, “Not permitted under the law.” Powells’ term ends May 2026.

Our country has always had and needs an independent Federal Reserve. The financial markets believe in the Fed and its stability. I don’t believe the new administration will create chaos in the stock or bond markets. Since the election, the stock markets continue to keep climbing and setting new record highs, however, interest rates on bonds have gone up with the anticipation of higher inflation.

The Facts Surrounding Illegal Immigrants

Do we need to control illegal immigration? Absolutely. Is deporting 11 million people the answer? This information comes from various verified sources.

• Illegal immigrants can legally work in the U.S. and pay taxes.
• The US Department of Homeland Security has estimated there were 11 million illegal immigrants living in the U.S. as of January 2022. The Pew Hispanic Center estimates 500,000 illegal immigrants enter the US per year.
• 20% of them arrived after 2010, but the majority arrived before this time, some as early as the 1980s.
• As of 2022, the number of unauthorized immigrants in the U.S. workforce was 8.3 million.
• They reduce inflation because their jobs are concentrated in lower-wage, less-skilled jobs, such as construction, food service, and retail sales.

These unauthorized immigrants represent 4.8% of the workforce and fill a labor shortage. The U.S. unemployment rate is 4.1%. The immigrants are not taking jobs away from U.S. born workers. They actually fill important gaps in the workforce. If they are deported, who will replace these workers?

What are the economics behind deporting 11 million illegal immigrants? What are the logistics of arresting these people and their families? Once arrested, where will they be taken? How long will they be kept there? Deport them to where? The cost is estimated at $100 billion. This sounds like cutting off your nose to spite your face.

Stopping illegal immigrants from entering the country is correct and makes sense. However, when you look at the facts, does deporting 11 million people, some who have been here for 30 to 40 years, make sense? I don’t think so.

National Debt

We have not heard much about the national debt during this election year. In Trump’s term from 2017 through 2020, the national debt went up 40% from $19.9 trillion to about $27.8. Non-COVID debt rose $4.8 trillion because of tax cuts and military spending, plus $3.6 trillion for COVID Relief and the Cares Act. Biden’s debt increase will be about $4.3 trillion or 19% from $27.8 trillion to about $33 trillion. Non-COVID is $2.3 trillion and $2.1 trillion was American Relief Act.

The Republican party have long favored a reduction in the national debt. I think most Americans would agree. Last fiscal year’s budget deficit was $1.8 trillion, triple the level of eight years earlier.

Trump has proposed many tax cuts and Elon Musk has proposed $2 trillion in spending cuts. However, 62% of the $6.8 trillion budget spending is Social Security, Medicare, defense, and interest on our debt, which are almost impossible to cut.

Cutting taxes will increase the debt and finding cuts in the budget will be difficult. Politicians make campaign promises sound simple to implement. In reality, solving problems of this magnitude is always complex and difficult.

INFLATION

Inflation is Steady

• The Consumer Price Index (CPI) for October rose 0.2%. Year over year it rose 2.6%
• Core inflation for October rose 0.3%. The annual rate year was up 0.2% to 3.4% year over year.
• The Super core CPI measure, services prices excluding energy, goods, and housing costs, that the Fed has highlighted, also rose 0.3% to 3.7% year over year.
• Personal Consumption Expenditures, PCE, the Fed’s preferred inflation measure for September, the latest reported month, continues to fall. PCE prices rose 0.2% in September and are up 2.1%. The third quarter increased 1.5% versus 2.5% in the second quarter. “Core” prices, which exclude the ever-volatile food and energy categories, rose 0.3% in September. The third quarter increased 2.2%, compared to 2.8% in the second quarter. This is a vast improvement from the 3.7% reading for the twelve months ending September 2023. The pace of inflation in the past year continues to slow down and is reaching the annual target of 2%.

MANUFACTURING

Manufacturing Remains Choppy

The Manufacturing PMI® [ISM] fell to 46.5 in October from 47.2 last month. A Manufacturing PMI® above 42.5%, over a period of time, generally indicates an expansion of the overall economy. However, the trend has been steadily down.

The New Orders Index went up 1.0 and New Orders Export and Employment were up slightly. Most others were down and in contraction. Production Index was down 3.6, the Backlog of Orders Index was down 1.8 along with Customer Inventories down 3.22. The Employment Index rebounded slightly from its lowest level in 4 years.

• ITR is forecasting there will be a slight decrease in the near term because of the Boeing strike. Production will then pick up again in 2025 and 2026.
• ITR also forecasts US Industrial Production leveling this year. They also anticipate sustained production rise in 2025 and 2026 as near-shoring and lower interest rates spur rising activity and industrial sector investment.
• US non-defense capital goods new orders, excluding aircraft, rose 0.4% versus a consensus expected decline of 0.1%.
• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, fell 0.3% in September following a 0.1% decline in August and a 0.4% drop in July. These shipments declined at a 2.8% annualized rate in Q3 versus the Q2 average. This represents the largest quarterly decline since the second quarter of 2020, and the third quarter in the last four where core shipments were down.
• New home sales were up 4.1%, a sixteen month high, while existing home sales fell 1%. The 30-year mortgage rates have started going up again which will hurt the sale of new and existing homes.
• Car and light truck sales rose from September to an annual rate of 15.7 units. ITR is forecasting next year’s sales to be about the same as this year and 2026 to be up 3.6%.
• The NFIB, National Federation of Independent Business, reports that small-business September Confidence Index rose 0.3% to 91.5. This is below the 50 year average of 98. The Uncertainty Index rose 11 points to 103, the highest reading recorded.
• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across our ten locations and a diverse industrial base. Based on our twelve-month trailing average volume fell 7%.

CHINA

Very Little Change

China continues to try to stimulate a very lethargic and flawed economy with reductions in interest rates. Every one of these announcements has done very little to resolve its problems. The official PMI and Caixin narrowly moved up to just over 50 and out of contraction.

The economy expanded at the slowest pace in six quarters in the three months ended in September. The housing market disaster continues to severely damage and hurts consumer confidence, which is the lowest since 2022.

The economy faces long-term challenges with entrenched deflationary pressure and a shrinking population. With the election of Trump, trade tensions and tariffs will increase. China will soon change their strategy. Stay tuned.

METALS

Get Ready for Change

The election of Trump will be a game changer. Tariffs have been threatened and we don’t know how large they will be and which metals will be affected. The dollar has been stronger, which puts pressure on metals. The tariffs and changes will be gradual and will take time. If the Ukraine war is settled, sanctions on Russian metal may be relieved. Trade wars will also impact demand. Time will tell.

Reuters revised its aluminum forecast for 2025 to average $2568 per metric ton up from its May 10 forecast of $2480. It sees a surplus of 100,000 tons next year down from 460,000 tons this year.

Aluminum scrap prices went up again in November for both prime and secondary. Aluminum scrap remains in tight supply. Copper and nickel prices fell. Stainless and ferrous prices have held steady.

CLOSING

November is the month of our Thanksgiving holiday. I am grateful for the opportunity of writing Market Insights as it gives me the opportunity to continue learning while researching information to pass along to you. I am also grateful to my readers who follow and provide feedback on each publication of Market Insights.

May your blessings be many, your troubles be few and your Thanksgiving be filled with those things that make you happy.

P.S. Maddie Carlson’s Sustainability Insights is another blog we are sending your way. I am so excited about Sustainability Insights as 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.

“Double – no, triple – our troubles and we’d still be better off than any other people on earth.”
-Ronald Reagan

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

Bruce Shapiro

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