SVET Reports

SVET Markets Weekly Update (October 24, 2022)

This week’s notable macroeconomic updates include:

New Home Sales for September at Wednesday;
GDP Growth Rate for Q3 and Durable Goods Orders for September at Thursday;
Personal Income and Spending Report for September at Friday.
August 2022 saw a sharp increase in the number of new home sold. It jumped from 532K in July to a 5-month high of 685K in August (+28.8%). Meanwhile analytics expectations put it on 500K. It was the biggest increase since June 2020. Looks like capital holders are frantically trying to park their cash flows into appreciating assets expecting the inflation savagely eating into its otherwise. Sales grow across all regions — in the Northeast (66.7%), the Midwest (16.7%), the South (29.4%) and the West (27.5%). The median sales price of new houses is up 8% from a year ago ($436,800).

That is accompanied by rising expectations of shrinking revenues from all types of economic activities as the US economy continues its stagflationary downfall. GDP contracted 0.6% in Q2 2022 following a 1.6% drop in Q1. Fixed investment were one of the main draggers in Q2. At the same time, consumer spendings continue to grow offsetting a downward revision to exports. According to most recent FED estimates US economy will expand 0.2% in 2022 (compare to 5.9% growth in 2021 and 2.8% reduction in 2020).

As US consumers continue to brainlessly dispose of their banks accounts positive balances accrued during 2021 in a post-enclosure buying frenzy, US manufacturers demonstrate classical recessionary behavioral patterns.

New durable goods orders declined 0.2% in August of 2022, after dropping 0.1% drop in July. The biggest decline was registered in transportation equipment (-1.1%), specially in aircraft and parts (-18.5%). It was added by a slight reduction in fabricated metal products (-0.7%) and nondefense capital goods (-2.7%).

Not surprisingly, increases were seen in orders for defense aircraft and parts (31.2%); defense capital goods (10.1%). Much slighter increases were also registered in electrical equipment and appliances (1%), computers and electronics (0.8%) and primary metals (0.4%).

At the same time, US personal incomes continue to rise month after month during the whole year at a rate ranging from 0.3 to 0.8 percent (it was 0.3 percent in August).

On the other hand, personal spending in the US rose 0.4% in August of 2022. Spendings increased on services, spearheaded by housing and utilities, transportation as well as health care. Simultaneously, consumption of goods declined — most notable for gasoline and other energy goods (despite gasoline prices dropped 11.8% to $3.691 per gallon in August from July).

Overall, consumption is showing signs of cooling after it had been resilient in the first half of the year. As the Fed crazy policies continue, energy costs remain elevated and the inflation holds close to 40-year highs, weighing on consumers’ behavior.