As we kick off the new year, this week’s Steady Investor assesses the factors influencing the current market and anticipates what lies ahead, such as:
• Finding equilibrium in today’s job market
• Strong auto sales in 2023 and what it means now
• U.S. manufacturing in a current slump
Finding Equilibrium in the Job Market – The U.S. Labor Department released its job openings and labor turnover summary (JOLTS) report on Wednesday, and data in the report reinforced the idea that the U.S. labor market has stabilized in a strong place. According to the JOLTS summary, there were 8.8 million job openings at the end of November, which is still well above the number of unemployed people actively seeking a job and suggests there is still steady demand for workers.1
More Job Openings (blue line) than Unemployed Persons (red line)
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Although the job market remains strong, there has been a welcomed trend of cooling over the past two years, with Federal Reserve Chairman Jerome Powell commenting that, “the era of this frantic labor shortage [is] behind us.” According to data from the job-listing site, Indeed, total job postings were down 15% in 2023, and federal data showed that the ‘quits rate’ (2.2%) is at its lowest level since 2020, suggesting that workers are less certain about their prospects in the labor market. Fewer open jobs and fewer quits both point to an increasing likelihood that wage pressures will ease, which is an outcome that the Fed wants to see.
Strong Auto Sales in 2023 Double as a Positive for Inflation – The auto industry had a bad year in 2022. Snarled supply chains, issues at manufacturing facilities worldwide, and dealerships with anemic inventories led to the worst sales year in over a decade. 2023 was much, much better. Supply chain problems faded and production ramped back up globally, essentially unwinding many of the issues that hurt sales in 2022. Rising inventories, easing prices, and more promotional deals resulted in industry-side sales of 15.5 million vehicles last year, a 12.4% jump from last year. Many automakers also reported double-digit sales gains year-over-year in 2023, with General Motors maintaining its position as the U.S.’s top seller. GM reported this week that it sold 2.6 million vehicles in 2023, a 14% increase from 2022 sales. More inventory and a few manufacturing issues led to prices falling from 2022 levels, but consumers still paid an average of $46,055 for a car last year – far higher than 2019 levels.4
A Mixed Bag for U.S. Manufacturing – The U.S. manufacturing sector spent much of 2023 in a slump, but factory construction in the U.S. is experiencing a boom. How can both be true at the same time? Let’s start by examining the slump, which is evident in the Institute for Supply Management’s (ISM) manufacturing index data for December.5 The index came in at 47.4 in December, which while an improvement from November’s 46.7 still marks the 14th consecutive month of contraction. New orders, which offer the clearest signal of demand, continue to decline as seen in the chart below.6
Manufacturing New Orders, % Change from a Year Ago
Meanwhile, the U.S. manufacturing sector is also said to be entering a ‘golden age,’ with billions of dollars of new government subsidies flowing from the Inflation Reduction Act and the Chips and Science Act, which included $39 billion in subsidies for semiconductor producers. Therein may lie some of the disconnects – the subsidies only target a subset of manufacturers in high-tech and renewable energy sectors, which comprise a very small sliver of overall industrial production. Even still, spending on new factories rose 40% in 2022 and was up 72% through the end of October 2023, which implies that more production and gains in manufacturing employment are in the offing.
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Disclosure
2 Fred Economic Data. January 3, 2024. https://fred.stlouisfed.org/series/JTSJOL#
3 ZIM may amend or rescind the guide “How Solid Is Your Retirement Strategy?” for any reason and at ZIM’s discretion.
4 Wall Street Journal. January 3, 2024. https://www.wsj.com/business/autos/u-s-auto-sales-bounced-back-in-2023-ecd389dd?mod=djemRTE_h
5 ISM. 2023. https://www.ismworld.org/globalassets/pub/research-and-surveys/rob/pmi/rob202312pmi.pdf?mod=djemRTE_h
6 Wall Street Journal. December 31, 2023. https://www.wsj.com/articles/why-manufacturing-is-in-a-slump-despite-signs-of-a-renaissance-50661126?mod=djemRTE_h
7 Fred Economic Data. January 3, 2023. https://fred.stlouisfed.org/series/AMTMNO#
8 ZIM may amend or rescind the guide “How Solid Is Your Retirement Strategy?” for any reason and at ZIM’s discretion.
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