Oil prices surge to two-week winning streak as Iran supply fears grip markets
There is a lot of important economic news being announced this week. Bad economic news, like continued job creation problems and lackluster retail sales, is expected to be viewed as good news, since it is expected to convince the Fed to continue to cut key interest rates.
Due to a higher unemployment rate, the Fed has to keep cutting key interest rates. The Labor Department on Tuesday reported that 105,000 payroll jobs disappeared in October, while 64,000 payroll jobs were created in November. The unemployment rate rose to 4.6% (up from 4.4% in September). Average hourly earnings rose only 0.1% in November, which was well below economists’ consensus expectation of a 0.3% increase.
There were some “green shoots” in the October retail sales report. The Commerce Department reported on Tuesday that retail sales were unchanged in October. Auto sales plunged 1.6% in October, due somewhat to the expiration of the $7,500 EV tax credit. Excluding autos, retail sales improved 0.4% in October and were better than economists’ consensus estimate of a 0.2% increase.
Speaking of auto sales, Ford Motor announced a $19.5 billion write-down associated with discontinuing several electric vehicles, like the F-150 Lightning. This popular truck will be replaced by a model with a gasoline generator that will provide this electric pickup truck with up to a ~700-mile range and help it tow better, which can severely deplete a battery pack. Essentially, Ford is now following what Scout Motors will be selling, namely electric trucks with gasoline range extenders. Ford will also be selling hybrid trucks with an electric motor. It will be interesting to see how electric trucks with gasoline range extenders will sell compared to hybrid models. Since the F-150 is the most popular pickup truck in America, I suspect that all its new models will sell relatively well.
I get a lot of questions about what could go wrong. My answer is deflation. Specifically, much of our consumer inflation was tied to shelter costs based on Owners’ Equivalent Rent, but now that rental prices have fallen for four consecutive months according to the Costar Apartment Monthly Rent Report, the shelter cost component (owners’ equivalent rent) should be plunging and show up in the Consumer Price Index (CPI) report.
Furthermore, CNBC reported that home prices have declined 1.4% in the past three months, and home listings rose 13% so the inventory of homes for sale is rising. The other deflationary forces are the fact that we are importing deflation from China and that crude oil prices are expected to remain low until the current supply glut dissipates.
There is a lot going on in the world, and recent terrorist attacks in Australia, Brown University, and Syria demonstrated that anything could happen at any time. The drug cartels that the U.S. has targeted could retaliate, and then the U.S. military would naturally respond. However, I am expecting that peace and prosperity will continue to thrive in 2026, which is good for overall GDP growth.