The Real Economy — We talk a lot about inflation, movements in stock prices, and recently—thanks to a confused administration—what actually defines a “recession.” But the thing is, all of these concepts are what Matthew McConaughey’s character in The Wolf of Wall Street would call “fairy dust,” “a fugazi,” or simply “not f*ckin’ real!”
So today, let’s zero in on how the real economy is doing. By “real” economy, I’m referring to actual stuff that gets produced in factories that you could touch.
That’s it for the italics, I promise. Yesterday, the economic overlords dropped a couple of bombs on us in the form of the July ISM Manufacturing reports, along with a reading on construction spending for the month. Let’s dive in.
If you placed our bets on “pretty bad, but not horrific,” congratulations! You nailed it. July’s Purchasing Manager’s Index (PMI) registered a cool 52.8%. As you’ll recall from Macro 101, anything over 50 represents an expanding economy, so we’re looking good on that front. The problem is that the reading is a 0.2% drop from April, meaning we’re heading in the wrong direction.
Still, July’s numbers mark the 26th straight month of expansion, according to the ISM, but it sure doesn’t feel that way, does it?
According to the report, the main culprits include production backlogs, imbalances in inventory levels, record-long lead times for production materials, and slowing new orders and employment. If you were wondering why your new car has a 4-month delivery wait time or why there are only two employees working at your local Dunkin’, this certainly provides some explanation.
As for construction spending, we were blessed (cursed?) with another instance of economists being way off. Estimates put July construction spend at a month-over-month growth rate of 0.1%. Instead, spending actually declined by 11x that amount, falling 1.1% in July.
That was primarily driven by a steep slowdown in residential housing construction. This makes sense and might even bring a smile to daddy JPow’s face. With interest rates on the rise, consumers are far less eager for a new place.
While that’s not awful on its own, the US already has a drastic housing shortage. This underinvestment in residential construction will only make that shortage worse, so if you’re like me and hope to buy a place to live in the next few years, this is a tough look, to say the least.
See, aren’t you glad we talked about the real economy? Instead of just stock price movements causing depression, now production and housing can too.
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