Diesel Dollars

While gasoline prices have increased somewhat since May as the price of WTI crude has risen by 13%, diesel prices are up over 40% over the same period. It’s because in May Saudi Arabia, Russia, and others in OPEC+ surprised markets with production cuts, and their heavy sour crude, which is usually cheaper than lighter sweet crude but is now more expensive, is best suited to making diesel.

Population Perspective

Since 2020, the employed foreign-born population of the U.S. has increased by 9.9%. It took until 21Q4 for this population to return to where it was pre-Covid. As for the native-born population, it is now 0.7% higher than it was pre-Covid, and it took until 22Q3 before it fully returned to its pre-Covid level. Immigration is critical to labor force growth.

Harmful Headwinds

The resumption of student loan payments on 10/1/23 is likely to knock 0.25 percentage points off quarterly annualized GDP. A government closure will knock 0.2 percentage points per week off quarterly annualized GDP, and a UAW strike against all three automakers would knock off another 0.1 percentage point/week. A two-week closure combined with a three-week strike means quarterly annualized GDP declines almost one full percentage point! That’s painful, albeit temporarily.

Minimum Money

Because the national minimum wage has not been raised in 14 years, it is becoming increasingly irrelevant. In 2010, 1.8 million workers were earning exactly $7.25/hour and another 2.5 million were earning less, like tipped staff. In 2022, just 141,000 were earning the minimum wage and another 882,000 were earning less. It’s a combination of states raising their minimum wages and low-wage workers demanding higher wages after Covid.

Bond Bump

The suggestion that massive increased issuance of Treasuries is what explains the recent increase in bond yields is unfounded as since 1980 the correlation between changes in debt supply and Treasury yields is zero. The rise is probably due to rising yields in Japan due to action taken by the Bank of Japan, tougher talk from the Fed, and rising “no recession” sentiment.

Involved Inflation

August CPI rose a sharp 0.6% M-o-M, largely attributable to costlier gasoline. Core inflation rose 0.3% M-o-M, its highest reading since May, but just 4.3% Y-o-Y, its lowest reading since 9/21 and its 10th decline in 11 months. However, core services rose 0.6% M-o-M, unchanged since March. The Fed’s favorite, core services minus housing rose 0.4% M-o-M, its highest reading since March. While generally falling, inflation remains uncomfortably high.

Strike Sums 

Prior to the start of the September UAW strike, there were eight work stoppages involving more than a thousand people, the largest of which is the Screen Actors Guild strike involving 160,000 workers. Three of the eight stoppages began in August. The total amount of lost workdays because of these stoppages was 4.1 million, 0.11% of total working time, and the biggest monthly total since 8/00.

Open Opportunities

On 7/31/23 there were a seasonally adjusted 8.8 million job openings, down from 9.2 million on 6/30/23, revised down from an initial 9.6 million suggesting rapid cooling, and 11.4 million Y-o-Y. This is the lowest level since 3/21, but still strong. Pre-Covid the number never exceeded 8 million. Quite rates also continued declining from a 3% 4/22 peak to 2.3%. If these declines soon stop, this qualifies as good news.

Pricey Payments

High rates have pushed up the average interest and principal payment for new borrowers using a 30-year mortgage to $2,306. Similarly, two years ago 5% of new borrowers had a payment over $3,000/month, today it’s almost 25%. Moreover, high rates have depressed the dollar volume of cash-out refi activity by about half from 22Q1 when it was almost 1% of available equity/quarter to 0.4%/quarter, a decline of $40 billion/quarter.

Weaker Work

August payrolls grew by 187,000, and June and July were revised sharply down and now show growth of 105,000 and 157,000, respectively, the first three-month sub-200,000 stretch since mid-2019. The unemployment rate rose from 3.5% to 3.8%, and wage growth slid from 4.4%/year to a still too high 4.3%/year. So far OK, but these declines aren’t occurring in a vacuum and the impact of tighter monetary policy is just beginning.

Lunchbox Love

Smucker’s Uncrustables, the lunchbox treats first produced in 1995, were introduced to stores in 2000. Sales are expected to hit $800 million in FY2024. Currently, four million sandwiches are produced each day in Denver, CO (where the plant is being expanded) and Scottsville, KY, and a new plant is being built near McCalla, AL. Newer flavors include BBQ Chicken and Taco.

Awesome Avocados

In 2000, avocado imports to the U.S. totaled 170 million pounds and avocado consumption was 2 pounds/person. By 2021, imports totaled 2.5 billion pounds, an increase of roughly 1,400%, as consumption rose to 8 pounds/person. With domestic avocado production and acreage steadily declining since 2011, 90% of avocados currently consumed in the U.S. come from Mexico and those imports are worth $3.1 billion/year.

Pricey Popcorn

During 1H23, AMC Theaters grossed $2.3 billion. Ticket sales generated $1.3 billion, other categories including advertising, auditorium rental, arcade games, etc. generated $200 million, and food and beverage spawned $817 million. Amazingly, food and beverage costs were $153 million, that’s a gross profit margin of 82% and a 434% markup. By contrast, film exhibition costs were $629 million generating a mere 52% margin, and a 106% markup.