Stocks closed last week generally higher. A surprisingly strong labor report for July helped alleviate recession fears, but opened the door to more interest-rate hikes from the Federal Reserve as it continues to slow inflation. The S&P 500 and the Nasdaq finished higher for the third straight week, the longest weekly rally since April. The Russell 2000 also enjoyed a solid week. The Dow and the Global Dow dipped lower. The apparent strength of the labor sector seemingly lends credence to the Fed’s premise that the economy is resilient enough to withstand larger interest-rate increases. A 75-basis point rate increase is now more likely when the Fed meets next in September. More rate hikes may pose a challenge for interest-sensitive stocks, like tech shares. Nevertheless, recent strong corporate earnings reports, coupled with strength in the labor sector, should bolster economic sentiment. Last week, crude oil prices posted the largest weekly loss since April after decreasing nearly $10.00 per barrel. Signs of a global economic slowdown has curbed demand, sending prices to their lowest level in six months. Falling crude oil prices are helping drive gasoline prices lower, with several states now posting average regular gasoline prices below $4.00 per gallon.
Last Week’s Economic News
- July’s labor data showed strength in that sector. There were 528,000 new jobs added, well above the 398,000 added in June and larger than the average monthly gain over the prior four months (388,000). Last month, the unemployment rate dipped 0.1 percentage point to 3.5%, and the total number of unemployed persons decreased 242,000 to 5.7 million.
- According to the survey of purchasing managers, manufacturing further weakened in July. The S&P Global US Manufacturing Purchasing Managers’ Index™ posted 52.2 in July, down from 52.7 in June. Contributing to the drop in manufacturing was the first decline in output since June 2020. Firms generally passed higher costs to consumers, as output charges rose at an historically elevated pace.
- Business activity in the services sector decreased in July, the first decline since June 2020. The S&P Global US Services PMI Business Activity Index registered 47.3 in July, down from 52.7 in June, marking the fourth successive decline in the services index. Survey respondents reported a contraction in output that was linked to subdued demand, worsening financial conditions, and higher prices.
- According to the latest Job Openings and Labor Turnover report for June, the number of job openings fell 605,000 to 10.7 million. Also in June, total separations, which include quits, layoffs, and discharges, were little changed at 5.9 million. Quits, which are a measure of workers’ willingness or ability to leave jobs, were 4.2 million, little changed from the previous month.
- The international trade in goods and services trade deficit decreased in June for the third consecutive month. The trade deficit was $79.6 billion in June, down 6.2% from the May deficit. In June, exports increased 1.7%, while imports decreased 0.3%. Year to date, the goods and services deficit increased $134.1 billion, or 33.4%, from the same period in 2021. Over that same period, exports increased 20.0% and imports rose 23.3%.
- The national average retail price for regular gasoline was $4.192 per gallon on August 1, $0.138 per gallon below the prior week’s price but $1.033 higher than a year ago. The largest decreases in job openings were in retail trade (-343,000), wholesale trade (-82,000), and state and local government education (-62,000). In June, the number of hires was little changed at 6.4 million.
- For the week ended July 30, there were 260,000 new claims for unemployment insurance, an increase of 6,000 from the previous week’s level, which was revised down by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended July 23 was 1.0%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended July 23 was 1,416,000, an increase of 48,000 from the previous week’s level which was revised up by 9,000.
Eye on the Week Ahead
The latest inflation data is front and center this week with the releases of the July Consumer Price Index, the Producer Price Index, and import and export prices. Over the past 12 months ended in June, the CPI is up 9.1%, the PPI has advanced 11.3%, import prices have risen 10.7%, and export prices are up 18.2%.
Have a nice week!
Sincerely,
Robert G. Carpenter