Market Update - July 2024

The U.S. ISM (Institute for Supply Management) Manufacturing PMI reports 48.5 in June, nineteen of the last twenty months have been under 50.

The University of Michigan’s consumer sentiment came in at 68.2 June, its third consecutive month of declines.

The annual U.S. inflation rate continued its decline in June to 3.0%. The annual core CPI inflation rate also fell to 3.3%.

The Feds preferred inflation gauge (that excludes food and energy) fell to 2.6% in June from 4.3% a year earlier. The six-year trend displayed below:

GDP rose at an annual rate of 2.8% for April – June 2024. That was better than the 1.4% pace of the first quarter, and above the 2.1% analyst’s Q2 forecasts. These latest numbers suggest that the Economy remains on fairly solid footing, even with a high Fed Funds rate.

The US economy added 206,000 jobs in June, with 111,000 in downward revisions for April & May. The revised ratio of Job Openings vs the Number of Unemployed is now at 1.22 for both April and May.

The unemployment rate inched higher to 4.1% for June, the first time it crossed above 4% since 2021. The total number of unemployed also increased for a 2nd consecutive month by 200K.

Inflation and employment trends over the past few months may finally spur the Fed to start lowering the Fed Funds Rate in September, given their mandate is to promote maximum employment and stable prices within the Economy.

Nominal wage growth for last month was 3.9% YOY, marking a continued YOY decline since March 2022. It does, however, remain above pre-pandemic levels.

Home prices hit a new high for a second straight month. The national median existing-home price rose to $426,900 in June vs $419,300 in May. The New York Post indicated earlier in the year that the housing market is short over 7.2M homes to cover demand. This shortage could take several years to close the gap between the number of households being formed and the number of homes being built.

Economists indicate car prices, both new & used, will soften over the back half of 2024. New car loans currently average 7.3% and used car loans are at 11.5%. As 2025 models roll out, expect to see better deals on the remaining 2024 inventory. Cox Automotive still expects a 1.3% increase in YOY (Year Over Year) auto sales (15.7M vehicles) but warns of potentially lower second half sales due to slowing economic conditions.

According to the USDA, net cash farm income is expected to be under $122B, about a 24% decrease from last year. On 7/24/24, John Deere laid off about 15% of its salaried workforce. Agco also has signaled that it will lay off about 6% of its salaried workforce.

Power consumption continues to grow as new data centers and manufacturing capacity continue to increase demands on the power grid. Preston Pipe recently reported it’s been predicted by authorities that the Texas power demand could double by 2030.

Oil and gas active wells in the U.S. report at 589 as of the end of week 7/26, up one from last month. Prices per barrel were down approximately $4/bbl to $76.43. (WTI)

U.S. government interest expense reached $1.1T, according to 1st quarter figures from the Commerce Department. The graph below depicts the massive interest expense surge over the past few years, a combination of high interest rates and ever-increasing government deficit spending.

Steel Industry News recently reported that Steel Distributors are reporting a slowdown in spot market demand for their products, citing a seasonal construction lull, customers lowering inventory levels, and increased economic uncertainty impacting customer capital expenditures.

The Biden administration announced a 25% tariff on steel imported from Mexico. This applies to metal that is not melted by an USMCA country.

Hot Rolled Coil for July reporting average of $650/ton, down from June $710/ton (SMU).

Lead time range on Hot Rolled Coil remains at 3-6 weeks on average.

#1 Bush Scrap May at $380/ton from flat with June’s reported numbers.

Steel production capacity utilization, according to AISI (American Iron and Steel Institute) continues to lag compared to 2023. However, week ending July 27 closed at 1.729M/tons (77.9%) with a production quantity increase from 1.689M in July 2023. Overall YTD produced tons are 50.772M/ton (76.6%). The total tons produced are down 2.1% YOY, with capacity utilization at 77.3% for same period prior year.

Nickel closed 7/29 at $7.21/pound.

Month to date the average has been $7.46/pound, a decrease from the June average value of $7.94. (London Metal Exchange).

LME (London Metal Exchange) nickel stockpiles are at 105,100 tonne, an increase from one month ago of 10%.

Shanghai opened trading at $126,650 y/t, down from June at $137,000 y/t.

Nickel surcharges decreased on stainless welded pipe material $1.16 (304) and $1.93 (316) for August, compared to $1.27 (304) and $2.08 (316) for July (Felker).

Nickel demand continues to be strong, fortified by electric-vehicle sales that continue to build. With prices softer and increased supply, up 5% year over year, the extra supply predominantly from Indonesia a fast-growing producer of the globes nickel. (e-stainless).

Stainless steel flat-roll prices are reported level for Q2, based on level supply and demand factors.

The June average Midwest premium is at $1.331/pound a decrease of $.03 from May (Kaiser).

Precedence Research recently published that the aluminum market is predicted to grow from $169B in 2023 to $311B in 2033. The automotive sector will be a primary driver for this growth.

From the WSJ

Insight on Population Trends

Fertility is falling almost everywhere in the world, for women across all levels of income, education, and labor-force participation. The falling birthrates come with huge implications for how economies grow and the standings of the world’s superpowers.

Shrinking workforces, slowing economic growth, underfunded pensions and government programs will be a consequence of these falling rates. Smaller populations come with diminished global influence, raising questions in the U.S., China, and Russia about their long-term standings as superpowers.

2021 research by the University of Maryland indicated that although raising children is no more expensive than before, perceived constraints have changed: If people prefer spending time building a career, on leisure, or relationships outside the home, it is more likely to come in conflict with childbearing. The “intensity” of parenting is also a perceived constraint by many young adults.

Some U.S. legislators are now pushing for additional childcare subsidies and parental leave to help potentially reverse this trend. Japan has extended monthly allowances to all children, free college for families with 3+ children to try and reverse their 1.26 current birthrate.

With no reversal in birthrates in sight, economic pressures will intensify. Labor shortages will become endemic, and taxation to support government spending will be strained.

Disclaimer:

The information contained in this newsletter is a summary of current events provided by Marmon/Keystone LLC as a service/promotion to our customers. It contains information only and is not legal or investment advice. No reliance should be made on the information in the newsletter. Although we try to provide quality information, we do not guarantee the results obtained from the use of this information and we do not represent or warrant that such information is or will be always up-to-date, complete, or accurate. Any representation or warranty that might be otherwise implied is expressly disclaimed. You agree that we are not liable to you or others, in any way or for any damages of any kind, arising from this information or your use of or reliance on this information.