ResearchThree Things (10/18)

Three Things (10/18)

Oct 18, 2023

“Do every job you're in like you're going to do it for the rest of your life, and demonstrate that ownership of it." – Mary Barra, CEO of General Motors

Retail surprise

US retail sales increased in September by more than forecast. The move suggests household spending remains strong, despite efforts of the Fed to cool off consumer demand. In the three months ending in September, sales rose an annualized 6.4%, the largest end-of-quarter advance since June 2022. Purchases rose in eight out of 13 categories last month, including stronger receipts at restaurants, motor vehicle dealers, and personal care stores.

Although it appears that the ‘death of the US consumer’ headlines have been exaggerated, investors interpreted the reports as a sign that the Fed may continue hiking interest rates in the coming months. The surprisingly strong results certainly bolstered the “higher for longer” interest rate perspective and could come with some downside market pressures.

Electric shock

General Motors said Tuesday it is delaying production of all-electric trucks at their Michigan plant until late-2025. The decision was made to “better manage capital investments” and implement improvements to make their new electric vehicles more profitable. The delay is the latest sign of potential trouble for the multibillion-dollar plans of traditional automakers to move entirely to electric vehicles.

The news at GM follows Ford’s plans to pause their electric battery plant in Michigan as well. Union strikes and high fixed costs continue to plague American car manufacturers, paving a wide open road for disruptors to capture an outsized portion of the EV market. It appears that Clay Christiansen’s Innovator’s Dilemma is unfolding across American car manufacturers. As history shows, disruptors usually win out.

Cracks in the foundation

Builder confidence in the market for single-family homes dropped to the lowest level since January, as builders contend with a market dominated by high mortgage rates and costs for financing. The report marks the third straight monthly decline in builder confidence and have forced builders to issue more incentives, such as buying down mortgage rates, to bring buyers in the door.

“Builders have reported lower levels of buyer traffic, as some buyers, particularly younger ones, are priced out of the market because of higher interest rates,” said Alicia Huey, Chairman of the National Association of Home Builders. “Higher rates are also increasing the cost and availability of builder development and construction loans, which harms supply and contributes to lower housing affordability.”

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