On October 19, 2017 the DOW and S&P 500 celebrated the 30th anniversary of 1987’s Black Monday crash, which I will always remember, by setting another record close. The markets seem to be responding very well to the proposed tax cuts. In the event delivering on tax cuts follows the example of health care we may witness a whole different story.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of October 10, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
Housing Starts Down 4.7% in September… Dropping from an annualized rate of 1.183 million to 1.127 million, housing starts fell below the lowest estimate.
What it means – Given that the Southeast, including Texas and Florida, accounts for one quarter of housing starts, it’s no wonder that with the hurricanes this number would be off. But the numbers were drifting lower in August before the storms. Interestingly, housing starts fell 20.2% in the Midwest and 9.2% in the Northeast last month.
The September slump was fairly evenly split between multifamily housing starts, off 5.1%, and single-family starts, down 4.6%. It looks like housing starts will end the year about where they started, which means that new home construction won’t drive the economy higher.
Existing Home Sales Up 0.7% in September, Down 1.5% for the Year… Sales handily beat an expected loss of 0.9% last month, helped by strong results in Houston.
What it means – In a weird twist, existing home sales jumped 4% in the Houston area as investors piled into the market looking for bargains. Even with this unexpected bump, residential real estate remains sluggish. With just a few months left in the year, we’re on pace for lower sales than 2016, even though prices are a touch higher, up 4.2%.
Industrial Production up 0.3% in September… Manufacturing increased 0.1%, only the second positive reading in five months. Mining, which includes energy, rose 0.4% and utilities climbed 1.5%.
What it means – Hurricane Harvey took a bite out of the energy sector at the end of August, but it didn’t last long. On the flip side, all the new car buying hasn’t yet translated into more auto production, even though cars are flying off the lots.
Overall, the report suggests that manufacturing remains tepid, as it’s been all year, and the energy sector is gaining some ground.
I expect these numbers to perk up a bit over the next two months as consumers replace items lost in the hurricanes, but it won’t last long, probably until the middle of the first quarter of 2018.
The Lombardy Region of Italy Wants to Vote on Independence… Echoing the sentiments of the Catalans in Spain, the wealthy Lombardy region wants to vote on greater autonomy in Italy, specifically to get a better return on its tax dollars.
What it means – The Lombards are annoyed that they pay so much in taxes and get little in return. Since the financial crisis, the wealthy region, which includes Milan, has been economically carrying the rest of the country. They’re fed up, and want to change their tax-sharing arrangement with the federal government.
If either the Lombards or Catalans are successful, where would the trend stop? Urban citizens pay more than rural citizens, so should cities break away? And there are always wealthy zip codes. Perhaps they should be independent. Of course, all such discussions assume that pesky items like national defense, trade agreements, and currency considerations take care of themselves.
And while these two areas might be in the headlines, they aren’t alone. Scotland is poised to break away from the United Kingdom as the Brexit gets closer, and the Flanders have been restive in Belgium forever. I don’t expect these initiatives to gain any ground, but they will be fun to watch. It’s possible that, as things progress, the ebb and flow of independence movements start to weigh on the euro along with moves by the Federal Reserve.
Nielsen Can Now Measure Netflix Viewers… The television rating firm has developed a method for estimating how many people watch shows on Netflix, and for how long.
What it means – For Netflix, not much. The company charges a subscription and does not rely on advertisers, so whether viewers watch two episodes of a show or 20 doesn’t matter. And Nielsen can’t measure shows watched on devices other than televisions, or anything streamed overseas. But there is one big takeaway – how Nielsen accomplishes this feat.
The company creates an “audio footprint” of what viewers watch, and then compares it to available programming. The only way to create such a footprint is to listen to, and capture, what happens in your living room. This reminds me of the Samsung smart televisions that automatically recorded every sound and sent it to Samsung for analysis. The company claimed it helped refine voice recognition, which makes sense, but it still means that they recorded everything in your living room, or wherever you have your television. Creepy.
Next Week – The week of October 22 brings reports on durable goods, new home sales, and the first estimate of third-quarter GDP.
The proof is in the planning.
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