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Inside the Economy: Employment, Currency, and Natural Gas

By May 15, 2024No Comments

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This week on “Inside the Economy”, we evaluate employment, currency, and the importance of Natural Gas as a U.S. export. The recent job openings report shows a continued trend downward. What does this tell us about the trajectory of the U.S. economy? In other news, the U.S. dollar index continues to strengthen. How do global payments denominated in the U.S. dollar compare to other currencies such as the Euro? Lastly, the U.S. is a major exporter of Natural Gas. How much supply is left to keep the trend going? Tune in to learn more!

 

Key Takeaways:

        • Total job openings at 8.5M
        • U.S. Dollar Index at 106.2
        • ISM Manufacturing index falls below 50

Full Transcript:
Welcome to another edition of Inside the Economy!

I’m Larry Howes. Thanks for joining me!

This time we’re going to talk employment, some consumer credit newsworthy changes, a couple of questions about the dollar and where we’re going in the global hydrocarbon market, which is very important to the United States. Quick look at the numbers.

We have started to see a little slowing. The ISM numbers, the service side and the manufacturing side have both dropped below 50. Just a little tiny bit. And that is the breaking point between expansion and contraction. So a little bit of slowing, tiny bit increase in initial jobless claims, nothing significant.

But compared to where it’s been the last several months, pop up to 231 is boy. Changes in the job market. Everything else is down. Interest rates have come down. The market has mellowed. I think the market has adopted to the very high likelihood that there aren’t going to be any changes in the interest rates. Well, we’re talking fourth quarter now. Considering what’s going on. Even mortgages have come down a little bit.

Okay. This is kind of an important trend here. The red line is where employment cost index has been going. It turned here a little while ago. It turned at the end of 22 in the first part of 23. And you were hoping that the trend would continue down, saying, yes, we’re headed on our way to 2% inflation and wage push. And the term is wage push. Wages pushing for increases is over. It’s gonna, well, slow.

Well, it’s really not over. Some of this is the minimum wage increases in California and some other places that sort of brought people up, not really where they need to be, but brought them a little closer. And that is wage push. That’s part of employment cost index, which is up. It is not continuing to go down. It might change here, but it’s probably going to spend a little time being like this. It probably has to. The wage and hours side of the employee population is clearly behind on the inflation. We’ve talked about that.

You’ve seen this before. This is jobless claims. And the planned layoffs, the planned layoffs there in the dark have been very indicative of large corporate announcements of. We’re planning on doing this. We’re planning on doing that. Yeah, fine. Nothing dramatic. It’s pretty much been following what we hear in the news.

Most of the changes that you’ve seen in the jobless claims have been shifting of companies around, a lot of businesses leaving California, opening up in Ohio, whatever it is they’re doing. So the numbers just sort of shift back and forth. There isn’t a dramatically bad job market, which you’d expect after a year and a half of interest rate increases.

The job market is not doing that bad at all. We have seen spectacular job openings which were frankly bad numbers. As the numbers get clarified and a little more accuracy put into the system, they are normalizing. There are not excessive job openings out there. They are starting to materialize at the point where, gee, it’s nice to have a job opening in Denver, but a lot of people can’t afford to live here.

So the market’s simply going to have to continue to adjust. We’ve talked about revolving consumer credit, percentage of disposable income a lot. That number has stabilized. And actually, if you look at the percentage of disposable income a decade or so ago, it’s really kind of normalizing to where it was before. It’s really not an exorbitantly large consumer number or credit number of the credit you can track. It’s fine. What you can’t track is what’s very common in the economy right now. It’s the buy now, pay later programs that all the credit cards are in and a lot of manufacturers are in and, and retailers.

Well, sure, you can buy this and just give us, even Amazon is in this business, $200 a month instead of $800 lump sum, and they’re happy to do that, take a little interest on that. That buy now, pay later program is something that is not in any of these numbers. There is a fair amount of consumer debt out in that, but it isn’t being tracked very well, and maybe it’s squeezing the consumer, maybe not.

Personal interest expense has bumped up. It has probably returned to a much more normal level. It was very low in the last ten years because interest rates were basically zero. Well, not in credit cards, but very low in credit cards.

The Biden administration had an interest in reducing late charges on all credit cards. They were going to maximize them at dollar eight for a late charge. That was an interesting political move. I think a district court in Texas or someplace put an injunction on it saying, well, there may be some problems with that. Try to imagine how a lot of the banks feel about a limit on their late charge fees.

We’ll see where that goes. It’s kind of like student loan forgiveness, lowering late charges on credit cards. A couple of questions on the dollar. Yes, the dollar is continuing to get stronger. It’s going to continue to get stronger and stay stronger. The United States is almost certainly going to be the very last of the economies to lower their rates. Everybody else Europe, Japan already has. All of them have to, because they need to get their economies moving along so they have to lower their rates.

United States has had a big problem slowing its economy down, so the dollar is continuing to get stronger. It’s great if you’re going to go to Europe or travel anywhere in the world, just buy the local currency before you go, and you’ll get a lot of local currency for your dollar. We’ve talked about the impact of this in the past. It’s just not going to change here in the foreseeable future.

You’d think it’d have a big impact on our imports and exports, which run about 300 billion a month. They really don’t, you know, our exports. The blue line down here is energy and a few other things, but mostly energy.

The imports are stuff. I mean, low end manufacturing goods from China come in via Mexico or Vietnam, whatever it is, all that low end stuff, the clothing, small manufacturing, whatever it is, the dollar is going to be king for sure for the foreseeable future and hold some of these other currencies back. There’s not going to be any relief for them in the site.

And another question was, is the dollar losing its significance as a global currency? They picked that up in the media someplace, somewhere. I have no idea why. No. The only possible competitor is the only word I can use. Complementary currency is even better, is the euro. And the euro is not holding its own. There are some issues going on in the European Union. There are some issues going on with the currency. There’s some issues going on with who’s doing what in the whole euro and European bloc.

So the euro has not been a major player in the currency market. It is more and more the dollar. Everybody else is down here on the bottom. They really don’t count. China has really tried to become a global currency, and nobody uses the Yuan unless they have to. It’s more and more the dollar. And this isn’t just energy, it’s everything. And energy is going to be the big thing. United States, what do we export?

Well, we export liquefied natural gas, a lot of it. That’s the orange. A lot in the pipeline, a lot in liquefied natural gas ships. Germany’s got about three LNG terminals just in Hamburg. They intend to buy LNG wherever they can get it. Right now, it’s pretty much the United States.

Once some of the issues are resolved in the Middle East, there will be big players there. Turkey and Israel will be players in the LNG market. We don’t know what Russia’s impact on the energy market is going to be after the disastrous everything in Ukraine, like I mentioned, that’s clearly a loss.

There seems to be a lot of natural gas in the US and other places in the world. It just seems that a lot of these people have trouble drilling a hole in the ground to get it. Texas finds more and more every couple of weeks, so there’s a lot of it. We’re energy players, major energy players, and that’s not going to change.

The S&P 500 and most of the domestic stock market are kind of going like this. Earnings were out in the first quarter and the earnings were okay. They’re up, you know, 5%. Bristol Myers Squibb, disappointed. Disney, Boeing, all having problems. They’re kind of holding earnings back. So I don’t think this stock market is going to get going until we get a little better earnings.

Now we’re looking third quarter, second, third quarter of the other economic diversions out there. They’re going to wait for earnings, but you’re going to hear conversations about, oh, Social Security is running out of money. That’s going to be a disaster. We’ve talked about that before.

Social Security is a pure cash flow item on the federal side we’ve already gone through. The Medicaid trust fund is running out of money. It’s the same thing there. It’s going to be diversions here because there’s really nothing substantive going on in any of these markets. Everybody’s waiting for rates to drop. And like I mentioned before, it’s not going to be that big a deal when they do.

Anyway, happy to deal with questions. Send them along to info@shjwealthadvisors.com, and thanks for joining me!

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