As we touched on in this morning's opening comments and in today's Daily Rundown video, we had two pieces of economic data today and with both in hand we can say one, the July Industrial Production report, was positive while the other, July Housing Starts, added another reason for the domestic economy to slow.
While the AAP portfolio has no position in home building or building product companies, we have to acknowledge more than a 9% drop in housing starts means the positive impact tied to outfitting a new home will continue to wane. No surprise given the weak showing for the MBA Mortgage Applications Index as interest rates have ticked higher that have made housing incrementally less affordable.
Turning to the July Industrial Production report, which came in stronger than expected, one of the key drivers was the upturn in motor vehicle assemblies and construction. The former suggests supply chain issues continue to improve, including those for semiconductors, a positive for our shares of Ford Motor (F) .
While that supply issue improves, we will continue to take a cautious path with F shares given concerns over consumer spending, especially as we continue to learn of more companies slowing hiring, trimming staff, or doing both as they look to right size their operations given the slowing economy.
Recent reports of such activity include Peloton (PTON) , but also Apple (AAPL) , with chatter Alphabet (GOOGL) could enact cuts as well. We continue to favor shares of Costco (COST) given its differentiated membership business model that generates a significant portion of operating income and EPS.
We are also warming up to Amazon (AMZN) shares now that the unfavorable timing of Prime Day 2022 vs. 2021 has passed and cost-conscious consumers are likely to increasingly turn to Amazon, something we refer to as the "inflation Death Star".
Getting back to the construction data in the July Industrial Production report, we see that activity as positive for our shares of United Rentals (URI) and Nucor (NUE) with more to come as Biden Infrastructure spending ramps. Headlines such as the ones below and others point to that spending spigot opening as well:
- California Forward to support Calif.'s federal infrastructure spending project
- State lays out $34.6B multi-year infrastructure spending plan
- Reality of more than $1B in water funding washes over South Dakota municipalities
The next known construction data point we'll be attacking will be the August ABA Architecture Billing Index data that is set to be published on Aug. 24.