Quantifying Costs: Hurricanes And IPhone X

Wednesday, September 13, 2017

The first signs of the two monstrous hurricanes — Harvey in Southeast Texas and Irma up the Gulf of Mexico coast of Florida — having affecting U.S. Gross Domestic Product (GDP) is finally showing up in this morning’s data. Forecasts from some of the major banks like Goldman Sachs (NYSE:GS) look for anywhere from 0.4-0.8% loss in growth for Q3. This is kind of a big deal, when 1-3% growth per quarter is what’s expected; a drop from nearly a half-point to full-point in quarterly data is enough of a punch to affect trading attitudes, especially as we begin to see the end of 2017 in sight, without many more chances to reach 3% growth for the year.

This morning’s Producer Price Index (PPI) numbers are from August, so we have yet to see the impact of the hurricanes. Even so, we look a little light at 0.2% growth, where 0.3% was expected. Stripping out food & energy costs, this number droops to 0.1%; 0.2% was expected. Cooler-than-anticipated conditions where economists continue to seek signs of inflation heating up in the marketplace are the culprit. This has not changed from the narrative we've seen most of 2017.

Some experts say it’s President Trump’s immigration plans that are curbing the natural course of wage growth for high-skill employment opportunities, which would eventually transfer through the system and show up in inflation metrics. The minimum wage in the U.S. remains $7.25 per hour, which hasn’t risen since 1991. So until something shakes free on one of these two issues, we’re likely to see stagnant inflation overall. That’s how important wage growth is to this matter.

Core PPI year over year is a nice, round 2.0%. That fits right in with other recent economic data. But again, we’re stuck in-range until a new catalyst enters the picture. If it winds up being hurricane damage that skews the outlook, this could actually suppress future growth overall — jobs and insurance payouts come immediately to mind — though they might be helpful for companies like Home Depot (NYSE:HD) .

Apple (NASDAQ:AAPL) concluded its latest keynote event yesterday at the new Steve Jobs Theatre with the unveiling of its new iPhone 8 and iPhone X. There was also new information about Apple Watch and its growing Services businesses, but the iPhone, being the world’s biggest company’s bread and butter — and especially considering the company expects to sell the upgraded X model for a cool grand ($999) — is the big news here. And some analysts were immediately critical of the high price point for the X; they did not see value of functionality of the product to justify it.

Apple shares are down a tad in today’s pre-market, and the stock — which had gone up nearly 40% in 2017 alone — did not spike northward following the keynote event. This, as discussed yesterday in this column, was to be expected. Will Apple continue to make a big deal of its new product unveilings if traders get used to selling the news?

Mark Vickery
Senior Editor

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