Wall Street continued its weekly rally last week, with all the major benchmark stock indexes posting solid gains. Traders focused on positive earnings reports from major megacap technology and communication companies rather than the latest data that showed inflation continuing to rise, opening the door for more interest-rate hikes from the Federal Reserve. Solid corporate earnings in the third quarter may be evidence that the economy can withstand the battle against inflation. However, a slowdown in manufacturing and the housing market could be an indication that the rate increases are impacting at least some parts of the economy. Nevertheless, stocks rallied for the second consecutive week, making it look likely that October will be a strong month.
Last Week’s Economic News
- According to the first estimate of gross domestic product, the economy accelerated at a rate of 2.6% in the third quarter following decreases in the first and second quarters of 2022. Increases in exports, consumer spending, nonresidential (business) fixed investment, and federal, state, and local government spending helped drive the third-quarter increase in GDP. The consumer price index, a measure of inflation, advanced 4.2% in the third quarter, lower than the 7.3% increase in the second quarter. The advance estimate of GDP is based on incomplete data and may change with the releases of the second and third estimates.
- According to the latest report from the Bureau of Economic Analysis, September saw personal income and disposable (after-tax) personal income increase 0.4%. Consumer spending rose 0.6% in September and consumer prices advanced 0.3%. Excluding food and energy, consumer prices advanced 0.5%. From September 2021, consumer prices increased 6.2%. Last month, prices for goods decreased 0.1%, primarily attributable to a drop in gasoline and other energy goods. Prices for services increased 0.6%, led by housing and transportation services. Food prices rose 0.6% in September, while energy prices fell 2.4%. From a year ago, food prices increased 11.9% and energy prices advanced 20.3%.
- The Federal Reserve released the budget statement for September, the last month of fiscal year 2022. The government deficit for September was $429.7 billion, $210.1 billion higher than the August deficit and $364.7 billion greater than the September 2021 deficit. A major contributing factor in the September deficit increase was $430.0 billion in spending attributable to student debt forgiveness. The deficit for FY 2022 was $1,375.4 trillion, well below the FY 2021 deficit of $2,775.6 trillion. Government expenditures in this fiscal year ($6,271.5 trillion) were marginally less than in the previous fiscal year ($6,821.6 trillion), while government receipts in FY 2022 ($4,896.1 trillion) were higher than in FY 2021 ($4,046.0 trillion). Individual income tax receipts were $587.8 million more than in FY 2021, while corporate income tax receipts increased by $53.0 million over the same period.
- New orders for manufactured durable goods in September, up six of the last seven months, increased 0.4%, according to the U.S. Census Bureau. This followed a 0.2% August increase. Excluding transportation, new orders decreased 0.5%. Excluding defense, new orders increased 1.4%. Transportation equipment, up five of the last six months, drove the increase, advancing 2.1%. New orders for durable goods rose 10.9% since September 2021.
- The advance report from the Census Bureau revealed that the international trade in goods (excluding services) deficit in September was $92.2 billion, an increase of 5.7% from the August estimate. Accounting for the rise in the trade deficit was a 0.8% increase in imports, which was more than offset by a 1.5% decrease in exports. Since September 2021, exports rose 23.5%, while imports advanced 12.9%.
- Sales of new single-family homes could not maintain their August pace of growth, falling 10.9% in September. For the 12 months ended in September, new single-family home sales fell 17.6%. Rising mortgage rates were the main driver of the fall in new home sales in September. The inventory of available new single-family homes for sale sits at 9.2 months, at the current sales pace. The median sales price in September was $470,600, while the average sales price was $517,700.
- According to the U.S. Energy Administration, the national average retail price for regular gasoline was $3.769 per gallon on October 24, $0.102 per gallon below the prior week’s price but $0.386 higher than a year ago.
- For the week ended October 22, there were 217,000 new claims for unemployment insurance, an increase of 3,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended October 15 remained 1.0%. The advance number of those receiving unemployment insurance benefits during the week ended October 15 was 1,438,000, an increase of 55,000 from the previous week’s level.
Eye on the Week Ahead
The Federal Open Market Committee meets this week, the result of which is expected to produce another 75-basis-point interest rate increase. The employment figures for October are also out at the end of this week. The labor sector has been relatively strong throughout the year, most recently adding 263,000 new jobs in September, while average hourly earnings have risen 5.0% since September 2021.
Have a nice week!
Sincerely,
Robert G. Carpenter