After a wild ride, the stock market ended up 1.1 percent this week.
A stock market rout continued on Monday with the Dow Industrials down 1,000 points at the open. All signs pointed to China as the main cause; slowing growth, devaluation of the yuan…and finished the day down 588.47 points….what a ride!
Chicago Fed National Activity Index
Led by improvements in production-related indicators the Chicago Fed National Activity Index (CFNAI) rose to +0.34 in July from -0.07 in June. Two of the four broad categories of indicators that make up the index increased from June and three of the four categories made positive contributions to the index in July.
The index’s three month moving average (CFNAI-MA3) edged up to a neutral reading in July from -0.08 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was at its historical trend and suggests limited inflationary pressure from economic activity over the coming year.
The Dow was up nearly 300 points in early trading Tuesday…Futures were up nearly 600 points prior to the open. At 3:30pm on Tuesday the gains had been pared to 58.26 points…. and finished down 204.71 points as selling accelerated into the close.
The Federal Reserve Bank of Richmond released its Fifth District Survey of Manufacturing Activity and reports that manufacturing activity slowed in August. Shipments and order backlogs decreased while new orders flattened.
The US Census Bureau Advance Report on Durable Good’s Manufacturers’ Shipments, Inventories and Orders July 2015:
- New orders for manufactured durable goods in July increased 2.0 percent following a 4.1 percent June increase.
- Shipments of manufactured durable goods in July, up two consecutive months, increased 1.0 percent following a 0.9 percent June increase.
- Inventories of manufactured durable goods in July, down two of the last three months were virtually unchanged, following a 0.4 percent June increase.
US Raw Steel Production
US raw steel production retreated 1.5 percent last week as mills operated at an ACUR of 72.9 percent. In the corresponding week last year, mills operated at an ACUR of 80.2 percent. Thus far this year mills have produced approx. 57,500,000 tons at an ACUR of 72.6 percent, down from the approx. 62,400,000 tons produced in the same period last year, an ACUR of 78.0 percent.
A couple observations as to why manufacturing and good quality jobs in the United States are in the toilet:
US farm income will decline 36% this year to the lowest level in 9 years, the Agriculture Department projected Tuesday, reflecting a continued slump in crop prices and recent weakness in the dairy and hog markets…The softening outlook for farm incomes comes amid a continued downturn in the US agricultural economy triggered by record corn and soybean crops the past few years…The farm industry slump is hurting large agricultural-equipment suppliers and seed makers. Last week, Deere & Co, the world’s largest seller of tractors and harvesting combines, said its profit in the third quarter, which ended in July, tumbled 40% as weak crop prices curb farmers’ appetite for new equipment.”
The world’s biggest producers of iron ore have a problem and it lies in the steel that has already gone into China’s cars, bridges and skyscrapers. Over the past decade, China has accumulated more steel than any other economy in the world and because scrap can be endlessly recycled, the country’s steelmakers are likely to turn increasingly to scrap instead of iron ore…This historic glut of Chinese steel and concerns over the country’s economic prospects have hurt prices for iron ore, the biggest ingredient in steel making. The commodity has fallen to roughly $50.00/metric ton from $190.00/metric ton in 2011…squeezing the profits of the world’s biggest mining companies. The S&P Mining Index has declined to 18.33 from above 70 over that stretch.”
Add to that the fact that a barrel of oil costs less than $40.00, down from more than $100/barrel last year.
For oil producers, China’s demand concerns are converging with a worldwide glut that is unlikely to ease soon. Production from countries including Saudi Arabia and Iraq remains robust, putting in doubt many analysts’ predictions of an oil price recovery in the latter part of this year.
Where does that leave us? Purchases of equipment for oil & gas, farming and mining are all in the toilet. Conditions are the opposite of what they were in the first decade of this century…and this is the cycle of business. The wheel is always turning, sometimes you are at the top looking for as much product to sell or you can’t manufacture enough fast enough, at other times you are struggling to get off the bottom, getting rid of what you are stuck with from the excesses created while servicing the top of the wheel.
Bureau of Economic Analysis (BEA)
Real gross domestic product (GDP), the value of goods and services produced by the nation’s economy, less the value of goods and services used up in production, adjusted for price changes, increased at an annual rate of 3.7 percent in the second quarter of 2015, according to the “second” estimate released by the BEA. In the first quarter, real GDP increased 0.6 percent.”
The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month.”
There will be a final adjustment made for the second quarter in about a month.
This is all well and good…if it is true. I just do not see it with the economy in the shape it is in, or least the economy we deal with in the metals industry every day. Major industries are in the tank and show no signs of recovery any time soon. I know automotive remains strong, but it cannot carry the economy by itself. 3.7 percent growth is fairly decent, but where is the strength coming from? The BEA reports
The increase in real GDP in the second quarter reflected an upturn in exports… and a deceleration in imports.”
Are you kidding me? A strong dollar making our products non-competitive in the world market and our foreign trading partners dumping their steel, oil and other crap on our shores does not gel with that statement.
You make the call…
Alison Parker…Adam Ward…truly a senseless loss of life when they were brutally murdered this week. This horrific incident brings gun control once again to the top of the page but I have to tell you, short of repealing the 2nd amendment and subsequently confiscating every firearm in the country (not going to happen), nothing could have been done to stop this or any other crime committed with a firearm (bad people will always find a way to gain possession of a weapon).
And let’s face it, if someone is hell bent on committing murder they will find a way to do it-with some type of weapon. If you have your brains knocked out with a rock or a baseball bat-you are still dead. Guns are not the problem, mentally ill or just plain evil people are the problem, and we cannot legislate control over them and their thoughts.
Now, I don’t think it would hurt to require any diagnosed mental problems to be made a part of someone’s record and made available to the federal government when doing a background check; this would immediately be cause to refuse a firearm purchase application. That might help somewhat, but what of the individual with no issues that suddenly goes crackers? Once again, it is not the weapon, it is the individual.
Have a great weekend…. God bless America!
Buy American made products whenever you can, it’s good for you, good for your friends and neighbors and good for our country.
If you are hiring…try to hire a veteran…. they are loyal, disciplined, hardworking…and they deserve our support.
Remember these tidbits as the election cycle grinds on:
- Fast & Furious-Americans killed by guns supplied to the drug cartels…by the Department of Justice-Eric Holder presiding. The president was clueless. No one held accountable
- Benghazi: Four Americans killed in an assault described as the result of a viral video. This was proved to be a false narrative. This was in fact, a planned act of terror. The president was clueless. No one even knows where he was as this went down. No one held accountable
- “At this point, what difference does it make?” Hillary Clinton as Secretary of State
- The IRS targeting of conservative groups and individuals. No one held accountable, Lois Lerner is on paid vacation and has refused to testify. The president was clueless. No one held accountable
- Hillary using a private server for correspondence during her term as Secretary of State against the orders of the president. She thought “it would be more convenient…” Though the records were due when she left office, they were not submitted, subpoenas were issued, which she ignored for two years. Finally, she released 30,000 of some 60,000 alleged emails then she deleted the rest of the emails and will NOT turn over the server for investigation.