Big Week for Economic Data to Prove a Fed Pause is the Right Move
Following Fed Chair Powell’s speech at Jackson Hole, stocks initially traded off and were able to grind out a positive close to finish the week, with the S&P and Nasdaq posting gains while the Dow ended fractionally lower. Powell’s closing comment that “As is often the case, we are navigating by the stars under cloudy skies.” — was a bit intriguing, considering the reams of real-time, backward-looking and forward-looking data the Fed collects 24/7.
Some of the key economic reports of late suggest the 11 rate hikes that began in March 2022 are having their effect on several areas of the economy. Existing home sales decreased 2.2% month over month in July. Home sales were down 16.5% from the same period a year ago. Inventory for existing homes for sale remains tight and affordability continues to be adversely impacted by high prices and mortgage rates.
The S&P Global Flash U.S. Composite Purchasing Managers Index (PMI) for August shows the U.S. private sector at near stagnation amid a renewed fall in demand. According to the report, “Softer demand conditions were evidenced by the first decrease in new orders at U.S. firms since February. Manufacturers faced greater challenges driving demand as new orders fell at a quicker pace, while service providers saw the fastest drop in new business since the start of the year.”
Durable goods orders declined 5.2% month over month in July, led by a 14.3% drop in transportation equipment. Even stripping out the transportation component, business spending happened at a slow pace, evidenced by the 0.1% increase in new orders for all other non-defense capital goods.
University of Michigan Consumer Confidence for August came in at 69.5 versus the consensus forecast of 71.2 — suggesting consumers are looking at curtailing spending heading into the fall. It makes me wonder who gets surveyed for the consumer confidence readings when nearly seven out of 10 Americans have no savings to pay their bills beyond 30 days and nearly half don’t even have some cash on hand for a small emergency.
A recent Bankrate report found that, in the event of a major economic fallout, 68% of survey takers said they wouldn’t be able to cover their living expenses for a month if they lost their jobs today. Less than half (45%) of Americans would be able to cover a $1,000 emergency expense without turning to a credit card or loan, according to the survey.
It was reported in the Washington Post on July 11 that “businesses are starting to cut workers’ hours, forcing hundreds of thousands of people into part-time roles, in what could be an early warning sign for the economy. The number of people who worked part time, but want to work full time, rose by 452,000 in June, the biggest jump in more than three years, according to the Bureau of Labor Statistics. In all, 4.2 million people were employed part time for economic reasons beyond their control, a 12% increase from the month before.”
Economists allude that the latest spike in involuntary part-time work could be a harbinger of layoffs to come, especially when combined with other signs of slowing in the job market. “Looking at this indicator — along with two straight months of decline in Black employment — gives me a bit of pause,” said Michele Evermore, senior fellow at the Century Foundation and former deputy director at the Labor Department. “I don’t mean to be Chicken Little here, but this does tend to be a leading indicator that things are starting to slow down.” Joshua Mask, an economics professor at Temple University, says that in every recession since 1980, a marked increase in involuntary part-time work has predicted a downturn in the coming months.
Additionally, U.S. households are sitting on nearly $1 trillion in credit card debt and are increasingly turning to buy-now-pay-later services to pay for groceries. I don’t think the people in these categories are participating in any consumer surveys when they are tapped out of stimulus funds and are hitting their credit limits with interest rates averaging 24% for outstanding credit card debt.
This week, investors will get a tsunami of economic data that will surely move both bond and stock prices. Everything from data on inflation, jobs, housing, retail, wholesale, construction and manufacturing will cross the tape in a back-end loaded week.
As we head into the extended Labor Day weekend, it will be nice to put August in the rearview mirror. It’s been a tough month for the market as bond yields spiked to multi-year highs. If the economic calendar is kind to us this week and bond yields begin to recede, September should bring about some much better conditions on Wall Street.
There are some interesting fun facts about Labor Day other than that it is about celebrating the contributions and achievements of the 155 million men and women who are in the U.S. workforce. Oregon was the first state to declare Labor Day as an official holiday in 1887. Congress enacted it in 1894, making the first Monday of September a national holiday. It also marks the unofficial kickoff of college and NFL football, and the first Waffle House opened on Labor Day for all you Waffle House fans!
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