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America has become a massive housing construction site

A version of this post was originally published on TKer.co.

The economists at UBS are optimistic about the outlook for the U.S. economy.

“Retreating Covid, buoyed household balance sheets, and accommodative monetary policy should propel solidly above-trend U.S. growth the next few years,” economists led by Jonathan Pingle wrote on Tuesday.

In a 13-page note laying out forecasts for 2022 and 2023, Pingle and his colleagues predict that hiring continues at a high clip, supply chain pressures ease, and the inflation rate eventually cools to 2%¹ by the end of next year.

Honda Plant, Ohio, USA. (Getty Images)

Capex intentions are 📈

On the first page of their report, the UBS economists prominently feature a chart of capex intentions.

Short for capital expenditures, capex represents what companies are spending for the equipment they need to conduct business.

“Capex intentions are running at multi-decade highs,” the economists observed.

A lot of businesses are investing in themselves. (Source: UBS)

A lot of businesses are investing in themselves. (Source: UBS)

This isn’t just about the biggest companies exerting their dominance.

According to the NFIB’s October Small Business Optimism Index survey, 31% of small business owners plan to make capital outlays in the next three to six months. This is the highest since August 2018.

Renaissance Macro economist Neil Dutta flagged the NFIB’s stat and added that banks have been easing lending standards for commercial and industrial loans to small businesses.

Small businesses are planning to invest, and they’re able to get the financing for it. (Source: NFIB)

Small businesses are planning to invest, and they’re able to get the financing for it. (Source: NFIB)

“Positive developments for the capex outlook,” Dutta said in a tweet.

As TKer detailed a few weeks ago, orders for this equipment are already at record highs.

All of this represents economic activity that has yet to be recognized.

The challenge, however, is how quickly manufacturers can get this equipment to the buyers.

We already know delivery times are already extremely long. As a result, the backlog of unfilled orders for this capital equipment has never been this high.

(Source: FRED/TKer.co)

(Source: FRED/TKer.co)

On the bright side, economic activity that’s not happening now may just be economic activity that’s gonna happen down the road.

“Rising backlogs suggest firms will have plenty of work ahead of them once they are able to source the inputs and help they need,” Wells Fargo economists Tim Quinlan and Shannon Seery wrote in an Oct. 27 note. “In short, while the inability to deliver may be weighing on growth today, it should boost growth in the future.”

In case you missed it, here’s what I wrote last week:

  • What’s driving the labor shortages we keep hearing about? I compiled a list of 11 factors keeping workers from filling vacant positions. (Link)

  • The rate of inflation is at historic highs. No one refutes that, and most agree it’s causing a significant erosion of spending power. But it’s also the effect of something positive. (Link)

  • CEOs of big companies have been screaming bloody hell about the costs of inflation. Yet, quarterly results show these companies are doing just fine. (Link)

  • Most of the time, most people expect stocks to be lower in the next 12 months. That means people are wrong most of the time. (Link)

Rearview

📈 Stocks fall: The S&P 500 declined by 0.3% last week. Stocks fall sometimes.

🎈Inflation is hot: Prices for goods and services are surging. The Consumer Price Index was up 6.2% from a year ago, the biggest jump since November 1990. There’s no sugar coating this report. In fact, the price of sugar and sugar substitutes were up 5.2% during the period. For more on inflation, read this.

💼 👋 Take this job and shove it: A record-high 4.4 million workers quit their jobs in September, according to BLS data released last week. That number represents a record 3.0% of total employment in the U.S. As a percentage of total separations — which includes layoffs, firings and retirements — quits reached a record 71.3%. For more on quits, read this.

📉 Sentiment down: The University of Michigan’s widely followed index of consumer sentiment fell to a 10-year low amid concerns about inflation. Be careful interpreting this data: Despite sentiment tumbling for months, retail sales have been surprising many by growing. For more on people buying despite inflation, read this.

💳 Credit check: Total household debt — includes mortgage balances, auto loans, student loans, and credit card balances — climbed to a record $15 trillion in Q3, according to New York Fed data.

Household debt as of Q3 2021. (New York Fed)

Household debt as of Q3 2021. (New York Fed)

💰 Better pay plus tuition: Macy’s announced it was raising the minimum pay for employees to $15 per hour. The department store chain is also introducing a new education benefit program that will cover tuition, books, and fees.

🎥 People are going to the movies: In Q3, all 596 of AMC Entertainment’s U.S. theaters were open as were 351 international theaters. Globally, AMC entertained 40 million moviegoers during the period, up from 22 million in Q2.

💡 General Electric splits: Industrial conglomerate General Electric is splitting into three publicly-traded companies: one focused on aviation, another focused on healthcare, and third focused on energy.

🩹 Johnson & Johnson split: Healthcare giant Johnson & Johnson is splitting into two publicly-traded companies: one focused on consumer products and the other focused on pharmaceuticals and medical devices.

🚗 Brand new $127 billion car company: Rivian Automotive, the electric vehicle maker backed by Ford and Amazon, went public last week. On its first day of trading on Wednesday, $RIVN closed at an $86 billion valuation, and by Friday it was worth $127 billion. This compares to General Motors and Ford, which are worth $92 billion and $78 billion, respectively. Though the young company is worth less than Tesla ($1.0 trillion). Btw, Rivian has no revenue.

Up the road

🛍 The October retail sales report will be of interest. On one hand, it’ll reflect the strength of consumer spending, even amid inflation. On the other hand, the data is likely to be distorted to the downside by the fact that many desired goods were unavailable due to ongoing supply chain disruptions. The report will be released on Tuesday morning.

Big retailers will be announcing results for their quarters ending in October. They include Walmart and Home Deport on Tuesday; Target, TJX and Lowes on Wednesday; and Macy’s, Kohl’s and Ross Stores on Thursday.

(Source: The Transcript)

(Source: The Transcript)

¹ UBS is referring to inflation as reflected by the core PCE price index, the Federal Reserve’s preferred gauge of prices.

Sam Ro is the author of TKer.co. Follow him on Twitter at @SamRo.

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