Consumer Confidence for October came in above expectations at 113.8, +3.6% higher than last month (which was revised higher), and +12.2% higher than last year.
“Consumer confidence improved in October, reversing a three-month downward trend as concerns about the spread of the Delta variant eased. While short-term inflation concerns rose to a 13-year high, the impact on confidence was muted. The proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October—a sign that consumer spending will continue to support economic growth through the final months of 2021. Likewise, nearly half of respondents (47.6%) said they intend to take a vacation within the next six months—the highest level since February 2020, a reflection of the ongoing resurgence in consumers’ willingness to travel and spend on in-person services.”
Optimism regarding short term business conditions remained mixed, while expectations for labor market conditions and financial prospects improved.
Real personal incomes excluding government transfer payments increased +0.2% for the month and +1.9% higher over the last year. Income levels are hovering around the pre-COVID high point.
h2 Summary/h2
This was the first week the effect of the supply chain disruptions really showed up in the data. Q3 GDP came in at 2%, while initial estimates in August were for GDP growth of +6%, and if we strip out inventory investments then GDP growth was basically 0%. On the earnings side, many of the biggest companies in the world reported the financial effect of the disruptions. Apple (NASDAQ:AAPL) estimated a $6 billion effect on total sales due to shortages. Thinking ahead, we have to determine how much of those lost sales are temporary, and how much is lost forever. Each industry will obviously be effected differently.
My hunch is that we’ve hit peak supply chain disruptions and things will gradual get better from here. Although it may take a long time to return to normal. This is only based on the fact that its all we are hearing about in the media these days. It’s often the case that by the time everyone knows about a particular problem (the wall of worry), the damage that problem has caused has reached a crescendo. I could cite countless examples. Going forward, I suspect supply chains will become more flexible now that we’ve become aware of the new threat. We will learn and become better for it.
As for earnings, Q3 continues to be another solid quarter. Companies have become more efficient and have the pricing power to offset some of the lost sales. The growth rate will almost certainly slow in the 1st half of 2022, but slowing growth is not the same as a recession. Next week will be another important one for earnings, with roughly 1/3rd of the S&P 500 reporting results. We will gain more clarity into what the near term future holds.
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Next week: Another very busy week for earnings, with 175 S&P 500 companies reporting. I’ll be paying attention to Fortinet (NASDAQ:FTNT) and Square (NYSE:SQ)) on Thursday. For economic data, we have ISM Manufacturing PMI on Monday, ISM Services PMI and FOMC statement/press conference on Wednesday, and the BLS employment report on Friday.
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Written By:
Michael Gouvalaris
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