The Market Today
Jobless Claims Encouraging Despite Slowdown in Other Recent Data
by Craig Dismuke, Dudley Carter
Moderna submitted the required documents to the FDA as it seeks approval for its booster shot. The FDA’s advisory panel announced it would hold a meeting on September 17 to discuss booster shots. Encouragingly, U.S. health officials reported that new hospitalizations tied to COVID-19 declined for the first time since June. Louisiana’s governor extended a state-wide mask mandate until September 29 and Wells Fargo delayed its return-to-office plan from October 4 to October 18. Elsewhere, Ontario and Scotland said they plan to use vaccine certificates for access to certain businesses and activities as they attempt to slow the virus spread.
TODAY’S ECONOMIC DATA
Jobless Claims Show Labor Market Recovery Still Progressing Despite Slowdown in Other Recent Data: Traditional initial jobless claims for the week ending August 28 fell more than expected, down 14k to 340k, the lowest level of the pandemic. Thirty-one states reported fewer initial claims. Pandemic-program initial claims also dropped 11k for the week bringing the total number of new claims down 28k to 442k. Continuing jobless claims, however, continue to be plagued by volatile state-level data. Traditional continuing claims for the week ending August 21 were better than expected, falling 160k to 2.75mm, the lowest level of the pandemic. Forty-one states reported fewer traditional continuing claims. Pandemic-program continuing claims, in contrast, jumped 414k for the week ending August 14 on a 408k increase in continuing PUA claims. The bulk the national increase came from three states reporting outsized increases in pandemic-program claims: California +322k, Michigan +130k, and Maryland +60k. Overall, the jobless claims data show broadly positive results at a time when some data have shown weakness.
Trade Deficit Declines, but Much of It Applies to 2Q GDP Result: July’s trade balance data showed a $70.1 billion trade deficit for the month, smaller than was expected. Additionally, the report showed the June deficit revised down from $75.7b to $73.2b after the 2021 trade flows were revised to show stronger exports than originally reported. As a result, the smaller trade deficit in 2Q will push the GDP revision higher but reduce trade’s potential positive impact on the 3Q tally. After the revisions, the trade deficit only declined $3.1b in July versus expectations that it would decline $4.8b.
Factory Orders Report: At 9:00 a.m. CT, the July Factory Orders report is expected to show a slight improvement from June’s strong result. The report will include the revisions to the core capital goods orders and shipments data which initially pointed to a slowing of future business investment in equipment.
Fedspeak: Speaking today are Atlanta’s Fed Bank President Bostic and San Francisco’s Daly.
YESTERDAY’S ECONOMIC NEWS
ISM’s Manufacturing Index Beat Expectations in August Despite Persistent Headwinds: The ISM’s Manufacturing Index rose 0.4 points unexpectedly in August to 59.9, signaling activity continued to move forward despite more anecdotes indicating persistent supply-side headwinds. New orders increased at a faster rate than in July and production picked up, both signs of steady demand. Inventories also increased, which the ISM credited partially to less strain on the supply chain. Echoing that sentiment, the supplier deliveries index fell for a third month from May’s all-time high. While the signal is positive for economic activity, a declining supplier deliveries index drags on the headline. Providing another positive data point, prices paid, while still elevated, declined sharply for a second month. The biggest blemish of the report was the employment index falling back into contraction. Increasing backlogs of orders, combined with the other demand-positive indicators, appear to signal weaker employment is a product of a lack of ability to hire, not a lack of desire. The ISM cited in their statement “difficulties in hiring” and “transportation networks remain[ing] stressed” as hindrances to meeting strong demand.
Construction Spending Trend Helped Out By Revisions: Construction spending beat expectations in July and a strong net revision to the prior two months’ activity levels left the broader trend higher than previously estimated. Construction spending jumped 0.7% in May, a stronger result than the 0.2% decline previously reported. Despite the higher base, spending held up in June and rose 0.3% in July, edging out the 0.2% gain expected. Netting the changes together, spending over the last three months rose 0.9% more than projections. The underlying story, however, remained consistent. The residential sector continues to account for most of the improvement and has offset sluggishness in non-residential categories.
Auto Sales Can’t Find the Accelerator: Auto sales weakened for a fourth month in August to 13.06 million annualized units, marking a nearly 30% decline from April’s peak. The sector’s struggles amid a shortage of semi-conductor chips is well known and continues to be strongly supported by data tracking inventories, which are at a record low according to the BEA, and production, which remains significantly depressed. Stronger earlier demand, combined with the tight-supply dynamics, have driven auto prices higher, with particular strength for new car prices in recent CPI reports. The new car price index has risen at an annualized 23.5% rate over the last three months, marking the fastest increase for a three-month period since the 1950s. In the University of Michigan’s consumer confidence report for August, a net -29% of surveyed consumers said now is a bad time to buy a car based on price, a record for the series.
Modest Market Moves as Investors Look Ahead to Friday’s Jobs Report: The Nasdaq rose 0.3% to start September as Treasury yields posted modest declines on the first day of the month following mixed signals in the economic data. The tech-heavy Nasdaq notched a new record high, marking its sixth record close in the last eight sessions. The Dow and S&P 500 were mixed and little changed, falling 0.14% and rising 0.03%, respectively. Within the S&P 500, more sectors rose than fell with cyclical sectors generally weaker, led by a 1.5% decline in energy names. Oil prices were volatile, sliding early on a comment from a Russian official that his country had the ability to ramp up production in excess of quotas before recovering in the afternoon as OPEC+ agreed to move forward with their agreement, as previously announced, to gradually increase production. A report from the U.S. EIA also showed declining oil inventories and rising demand for distillates. Treasury yields had risen overnight but declined to session lows after ADP reported a weaker-than-expected gain for private payrolls. The 10-year yield recovered after the stronger-than-expected ISM, but turned lower again in afternoon trading. The 10-year yield ended 1.5 bps lower at 1.29% while the 2-year yield closed unchanged at 0.21%.
U.S. equity futures had moved modestly higher before 7 a.m. CT after a mixed performance to start September. Treasury yields, however, had ticked lower, reflecting a sense of timidity among investors ahead of tomorrow’s jobs report following a weak ADP print and contractionary ISM employment index. The Nasdaq continued to lead the S&P 500 and Dow on Thursday against a backdrop of mixed global equity performances. Continent-wide indexes for Asia and Europe were both hovering just above even for the day. Despite another sharper-than-expected increase in producer prices in July, longer yields in the Eurozone were lower by between 2 and 3 bps. Producer prices accelerated from a 10.2% annual pace to an all-time fast 12.1% in July. Lagging behind the declines in Europe, the 2-year Treasury yield had edged 0.6 bps lower to 0.21% prior to the claims report with the 10-year yield down 0.8 bps at 1.28%. Those levels were holding several minutes after the better-than-expected jobless claims report.
ICYMI – August 2021 Monthly Review – The Effects of Delta’s Spread Began to Appear in August Economic Data but a Dovish Taper Confirmation from Fed’s Powell Kept Stocks Buoyant at Record Levels: August was full of developments on multiple fronts. Markets, however, were more focused on economic trends and their potential impact on the expansion and Fed policy. After some solid data early in the month, including a strong July jobs report, incoming reports for August pointed to the expansion decelerating amid the fourth U.S. virus wave. The signs of slowing led investors to rein in probability assessments for some sort of surprise tapering announcement from Fed Chair Powell in his Jackson Hole speech. He did indicate tapering was likely to begin this year, but left questions about other aspects of the process unanswered and struck an overall dovish tone. He gave an in-depth explanation of why strong inflation should prove transitory and stressed the labor market still has “considerable remaining ground” to cover. His patient tone kept U.S. equities near record levels and limited Treasury yields’ monthly gains. Click here for the full review.