The Commerce Department reported last Thursday that the preliminary estimate for third-quarter GDP growth was an annual pace of 4.9 percent, due predominately to robust consumer spending. Personal spending last quarter rose at a 4 percent annual pace, the strongest rate since 2021. Rising energy exports helped, causing the trade deficit to decline, boosting GDP. Inventory growth accounted for 1.3 percent of the 4.9 percent growth. Excluding inventories and government spending, GDP growth rose at a 3.3 percent annual pace last quarter.
It is not unusual for inventories to build like this before the fourth quarter, in advance of holiday shopping build-up. However, if personal spending stalls in the fourth quarter, unsold inventory could cause an abrupt deceleration in GDP growth. If that happens, this could be the last of booming GDP quarters in a while, as high-interest rates (for a long time, as the Fed implies) tend to cripple a number of key industries.
Last Friday, the Commerce Department announced that the Fed’s favorite inflation measure, the personal consumption expenditure (PCE) index, rose 0.3 percent in September and 3.4 percent in the past 12 months. The core PCE, excluding food and energy, rose 0.4 percent in September and 3.7 percent in the past year. That means the Fed should not raise rates at its November or December Federal Open Market Committee (FOMC) meetings.
In addition, the European Central Bank (ECB) left its key interest rate unchanged at 4 percent in their central bank meeting last Thursday—after a historic run of 10 consecutive rate hikes.
The Commerce Department announced last Wednesday that new home sales rose 12.3 percent in September to an annual pace of 759,000. A decline in inventory of existing homes for sale continues to be one reason that new home sales are rising. The bad news is that average mortgage rates rose to 7.9 percent, according to the Mortgage Bankers Association, and mortgage activity has declined to the lowest level since 1995, which may curtail home sales in the upcoming months.
The Commerce Department announced last Thursday that September durable goods orders surged 4.7 percent, due largely to a rise in commercial aircraft orders. Excluding a 12.7 percent surge in transportation orders, durable goods rose 0.5 percent. This is an early indication that manufacturing activity may finally be improving.
There are also some “green shoots” in global trade. The first example is that South Korea’s early export data rose 8.6 percent in the first 20 days in October compared to a year ago. This is the first sign that global trade may have resumed rising after declining every month so far this year.
Stock Market is Like ‘Mob Rule’ — But We Engage in Independent Thinking
I like to say that, “The bigger the crowd, the lower the IQ,’ since the stock market is a manic crowd that is not always rational. Therefore, it was with some interest that I read that a Stanford University neurobiologist professor, Robert Sapolsky, recently concluded that after 40 years of studying humans and other primates, he determined that virtually all human behavior is beyond our conscious control and that we essentially react and do not think. Prof. Sapolsky created quite a controversy by saying that humans do not have “free will.” In his book, “Determined: A Science of Life with No Free Will” he said, “It’s impossible for any single neuron or any single brain to act without influence from factors beyond its control.”I would respectively add that the stock market has no free will, either. It is just a manic crowd that likes to “react” first and “think” later, if at all. But this analysis goes beyond the stock market to most global news events and trends. Situations like the wars in the Middle East and Ukraine may spin out of control without rational heads defusing the emotional situation. However, because every consequence has a reaction, we must choose as investors if we will just “react” or “think” when we see dramatic news cross the wires.
In other words, we have to decide whether or not we have “free will” in these situations, or do we just follow the mob and “react” to the news since we allegedly have no impulse control or free will?
I realize that Prof. Sapolsky knows more about the inner workings of neurons and brain activity than I do, so he may be right about how a crowd reacts, but eventually, individual humans do start to “think” and many will then act rationally. Social media and politicians are masters at making crowds react, which is how the Middle East became so outraged so quickly. They know propaganda can spread like wildfire.
A case in point is the price of oil. Is it rising just because of war in the Middle East? I don’t think so.
Crude oil prices remain high due, in part, to the renewed tension in the Middle East. However, I think the biggest development in oil prices coming this winter may be the fact that Western companies have abandoned Russia’s oil fields in the Arctic Circle, so if Arctic oil production is disrupted and/or the Arctic pipelines freeze, another 2-3 million barrels per day of Russian crude oil could go offline this winter.
Fortunately, the United States is still a major energy exporter of over four million barrels per day, so we can keep warm while boosting our GDP and reducing our trade deficit by exporting some of our excess energy.
The Chevron acquisition of Hess Corporation for $53 billion is the second major acquisition in recent weeks. This gives Chevron a 30 percent interest in Guyana, which is throttling up from 400,000 barrels a day now to 1.2 million barrels per day by 2027, so Chevron will now have an interest in the fastest-growing new oil field in the Americas. If Russia keeps going offline, it is imperative that the world develop more oil fields so Guyana could boost oil production to meet global demand, with Chevron leading the way.
In EV news, the Volkswagen Group has passed Tesla to become the EV leader this year in Europe, thanks to its Audi, Bentley, Porsche, Seat, Skoda, and VW brands that are selling EVs as well as plug-in hybrids. VW Group’s sales in Europe have risen 13.6 percent this year (through September), according to the European Automobile Manufacturers Association. Now that VW Group has almost 25 EV models, it is winning the EV war for market share, thanks to its great designs and many different models. The ID.buzz is expected to be VW’s biggest EV hit, and a larger, long-range version of ID.buzz is heading to North America.
There remains a glut of EVs for sale, but VW Group has the financial strength to offer lower interest rates to stimulate sales. Ford announced on Thursday that it is postponing $12 billion in planned spending on EVs. One of the big reasons consumers are avoiding EVs, according to Executive Chair Bill Ford, is high prices. Stellanis is also pushing back on EVs. GM is now being criticized that it was never serious about making EVs after it decided not to upgrade its Orion, Michigan plant to make EV pickup trucks. These EV moves by the Big 3 will likely appease the UAW, as EVs require fewer workers due to fewer parts.
Speaking of the strike, Ford and the UAW reached a tentative agreement last Wednesday. The UAW workers will get an immediate 11 percent raise and a 25 percent raise over the next four years. Better cost-of-living allowances and more generous pension contributions were also included in this tentative agreement.
We’ll see if this is the beginning of the end of the overall UAW strike. Somehow, I doubt it.
