BUSINESS OPTIMISM FOLLOWS TRUMP’S ELECTION

December 13, 2024

CONSUMER BUYING PRICES

After the election, pollsters began reporting that the business climate had improved. Polls were taken by the Association of International Certified Professional Accountants of 270 executives and another by?Duke University’s Fuqua School of Business of 500 executives in collaboration with The Federal Reserve Banks of Atlanta and Richmond. Those polled were CFOs along with a range of executives, including controllers, presidents, CEOs, and other high-level positions. The executives have now become significantly more optimistic about the economy and prospects for their own businesses. They expect stronger growth in 2025, and plan to spend more on expanding their businesses plus indicated an improved hiring outlook compared to the period before the election.?

Reasons for the optimism is that election uncertainty is now known, along with anticipated favorable regulatory policies and taxes that will benefit corporations. Manufacturers and construction contractors were among the most optimistic. The key concerns were inflation, monetary policy, and the potential effects from tariffs, and labor shortages. The potential higher cost of raw materials and energy were also noted issues.

The question of tariffs has caused much concern about inflation and trade wars. Trump has said that on “day one,” he will put 25% tariffs on all goods from Mexico and Canada plus 10% on all goods from China. On the December 8th segment of Meet the Press, President Trump was asked by Kristen Welker if the American families would pay higher prices as a result of his tariff plan, his answer was “I can’t guarantee anything.” We will see.

The 2018 USMCA [U.S. Mexico and Canada] trade agreement replaced the 1994 NAFTA trade agreement. According to the Office of the U.S. Trade Representative, the new agreement creates a more balanced environment for trade, supports high-paying jobs for Americans, and grows the North American economy. The USMCA agreement was formally ratified and took effect July 1, 2018. President Donald Trump was involved in crafting and signed the agreement when in office. It will be interesting to see if this stays in place.

Trump has also stated he will deport 13 million illegal aliens. Other statements on cutting taxes, budget deficits, spending cuts and curbing climate change were made. What Trump will actually do is unknown. Kieran Calder, head of equity research for Asia at Union Bancaire Privee said this: “This is President Trumps negotiating style: step one punch in the face, step two, lets negotiate.” If he doesn’t negotiate, tariffs and mass deportations will not be good for the economy.?

Why does the US economy continue to be strong while inflation and jobs are cooling down? One reason is the quarterly productivity of U.S. workers. This means more production with less labor.

Over the past five years, quarterly year-over-year productivity growth has averaged 2.1%, a sharp improvement from growth over the prior 10 years. More production with less labor is driven by technological innovations, shifts in the labor market, changes in work patterns, and business investments aimed at improving efficiency. Europe has only grown by less than 1% over the same time frame and Canada is barely over 0% since 2019.

Federal Reserve Governor Adriana Kugler stated in a speech this week, “Worker productivity increases the productive capacity of the economy and allows more rapid economic growth without overheating.” Certainly, good news for the U.S.

INFLATION

Inflation is low but uncertain

• The Consumer Price Index (CPI) for November rose 0.3%.?Year over year it was 2.7%.
• Core inflation for??November rose 0.3%, the same as the last 3 months. The annual rate year was 3.3% compared to last month’s 3.2%
• Personal Consumption Expenditures, PCE, the Fed’s preferred inflation measure for?October was up 2.3%?in the past year compared to 3% for the year ending October 2023. “Core” prices, which exclude the ever-volatile food and energy categories, rose 0.3% in October and are up 2.8% versus a year ago, an improvement from the 3.4% reading for the twelve months ending October 2023. Inflation has declined notably since the middle of 2023, but the slowdown in price growth has been uneven at times, including in the last two months. PCE continues to run slightly hotter than the Fed target of 2% inflation. Expectations for the December 17-18 meeting are another 0.25% prime rate cut and two more 0.25% rate cuts next year.??

MANUFACTURING

Still choppy

The Manufacturing PMI? [ISM] rose to 48.4 in November from 46.5 in October. A Manufacturing PMI? above 42.5%, over a period of time, generally indicates an expansion of the overall economy. This is the highest level in seven months but still not great. New Orders rose to positive for the first time in seven months, while Factory Orders were flat.

• Aircraft production will start at Boeing this week on the MAX 737, 30 days after the seven-week strike began. The demand for planes and travel remains strong. ITR is forecasting that production will pick up again in 2025 and 2026.?
• US non-defense capital goods new orders, excluding aircraft, rose only 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, rose 0.2% in October following declines in each of the last three months. If unchanged in November and December, these shipments would rise at a 0.5% annualized rate in Q4 versus the Q3 average. The orders declined in the last two quarters this year. And as previously stated, the?peopled polled believe change is on the horizon with the Trump administration heading back to Washington with a mandate to cut taxes, cut regulations, and trim the size of government.?
• New home sales were down 17% in October due to storms, while existing home sales were up slightly and starts were down slightly. October sales were affected by the storms in the south.
• Car and light truck sales have been on a 15.5 million track for some time and down from the 17.7 million pre-pandemic. The age of the fleet continues to be the oldest as people repair cars rather than buy new more expensive automobiles with higher interest rates.
• The NFIB, National Federation of Independent Business, reports that small-business September Confidence Index rose strongly in November with Trump becoming President. It is now over its 50-year average again for the first time in 34 months.
• 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 12%.?

CHINA

China is less dependent on the U.S. and vice versa

In the 8 years since Trump was elected the first time, China learned its lesson and has become less reliant on U.S. products. That is true for almost everything they manufacture. China is now even producing most semiconductor chips, with the exception of the advanced semiconductors. This is because that type of chip is used by our military and are banned from exports to China.

When Trump first came into office, American made cars were the top selling brands. Now, they don't even rank in the top 20. BYD (Build Your Dreams) is the top Chinese car maker. It is a combination of Tesla and GM, high technology and high production. Their EV’s are top performers and outsell Tesla worldwide. They are much lower in cost than European and domestic cars. If sold in the U.S., they would be a serious threat to our car industry. Right now, there are significant tariffs (100%) that Biden put into place. I imagine Trump raising them even more.

Warren Buffett invested $230 million in BYD in 2008. He started selling BYD stock in 2022 when it was worth $4.6 billion.?

The Caixin manufacturing index was stronger in November at 51.5 and higher than expected. The official PMI was also slightly better. This is the fastest expansion in five months. The pickup in orders and exports was mainly due to the anticipated Trump tariffs that are expected.

The rest of China’s problems have not vanished. They may continue to lower their bank interest rates, which has had very little impact. I’m confident that before they do anything significant, they, along with the rest of the world, will wait to see how the tariff negotiations progress.?

METALS

Tariffs and metals. It’s complicated.

The threats around new tariffs will definitely impact metal prices. If there is a 25% tariff hike on metal from Mexico and Canada on day one, things could get ugly. The U.S. imports 70% of our aluminum with 60% coming from Canada. Steel imports account for 24% of our supply with Canada supplying 25% and Mexico15%. In 2022 Canada exported C$59 billion worth of metals and minerals to the U.S.

Citigroup analysts predict that if 25% tariffs are enacted, steel prices could surge by $100 to $150 a ton. They also predict Midwest Premiums for aluminum could double from roughly $.20 per pound to $.50 per pound. I see some pros and cons here. No matter what, higher costs always get passed on to the consumer. Yikes.

Canada and Mexico along with every other country threatened by tariffs will have its own retaliatory measures ready to enact. We will see.

December aluminum prices were all down slightly. Copper and nickel were also down while stainless steel was flat. Ferrous looks to be either sideways or down without much hope in January for an increase.??

CLOSING

While we are waiting for the dust to settle, there will be uncertainty. And like in chess, there will be many moving pieces. Change will occur. Nothing is guaranteed. But what I do know is that to play the best chess game possible, our country must embody strategic thinkers, timing, adaptability, resource management, vision and patience. We will see.??

As 2024 comes to an end, I will remember it as the year Shapiro turned 120 years old. It has been a year of reflection and celebration.

From the Shapiro team, we wish joy and peace this holiday season along with a happy and healthy New Year.

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.

“Youth is when you’re allowed to stay up late on New Year’s Eve. Middle age is when you’re forced to.” ? -Bill Vaughan

"Life is good. Family and health are precious."?

Bruce Shapiro

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