The first week of November saw stocks climb higher on the strength of favorable corporate earnings data, strong job growth, a dovish policy statement from the Federal Reserve, and favorable news on the battle against COVID-19. Several of the benchmark indexes reached record highs. The Russell 2000 led the indexes for the week, followed by the Nasdaq, the S&P 500, the Global Dow, and the Dow. Ten-year Treasury yields dipped for the second consecutive week. The dollar inched higher, while crude oil prices fell. Several of the market sectors trended higher, led by consumer discretionary (5.0%), information technology (3.3%), and materials (3.2%).
Last Week’s Economic News
• October saw 531,000 new jobs added, the unemployment rate dipped 0.2 percentage point to 4.6%, and the number of unemployed dropped 255,000 to 7.4 million. The number of unemployed and the unemployment rate continue to trend downward, but they remain above their levels prior to the pandemic (3.5% and 5.7 million, respectively, in February 2020). Thus far this year, monthly job growth has averaged 582,000. Employment has increased by 18.2 million since April 2020 but is down by 4.2 million, or 2.8%, from its pre-pandemic level in February 2020. Notable job gains occurred in leisure and hospitality, in professional and business services, in manufacturing, and in transportation and warehousing. Employment in public education declined over the month. The labor force participation rate in October, at 61.6%, was unchanged from the previous month. The employment-population ratio inched up 0.1 percentage point in October to 58.8%. Among the unemployed, 840,000 voluntarily left their jobs, up 52,000 from the September figure. Conversely, the number of persons not in the labor force who currently want a job was 6.0 million in October, essentially unchanged over the month but up by 968,000 since February 2020. In October, 11.6% of employed persons teleworked because of the pandemic, down from 13.2% in the prior month. In October, 3.8 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic, down from 5.0 million in September. Average hourly earnings increased by $0.11 to $30.96 in October. Over the past 12 months, average hourly earnings have increased 4.9%. The average workweek decreased by 0.1 hour to 34.7 hours in October.
• There were no surprises following the Federal Open Market Committee’s meeting last week. The target range for the federal funds rate will remain at its present 0.00%-0.25%. However, in light of the substantial further progress the economy has made toward the Committee’s goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities, beginning later this month.
• Capacity constraints, transportation delays, rising material costs, and labor shortages continued to impact manufacturers in October, according to the latest survey of purchasing managers from IHS Markit. The IHS Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 58.4 in October, down from 60.7 in September. Although manufacturing increased (a reading of 50.0 and above signifies growth) in September, the PMI™ was the weakest in 10 months.
• While the manufacturing sector may be feeling the effects of supply bottlenecks, service providers enjoyed a strong October. The IHS Markit US Services PMI Business Activity Index registered 58.7 in October, up from 54.9 in September. Survey respondents noted a steep upturn in business activity in October, with the rise in output the quickest in three months. New business expanded, supported by a rise in new orders. Nonetheless, concerns regarding labor shortages and unstable supply chains led business confidence to drop to an eight-month low. The rate of cost inflation eased to an eight-month low, despite being quicker than any pace of increase since before March 2021. In response to a further rise in costs, firms raised their selling prices at the fastest rate on record.
• The September goods and services trade deficit was $80.9 billion, up $8.1 billion, or 11.2%, from the August deficit. Exports fell $6.4 billion, or 3.0%, while imports rose $1.7 billion, or 0.6%. Year to date, the goods and services deficit increased $158.7 billion, or 33.1%, from the same period in 2020. Exports increased $274.1 billion, or 17.4%. Imports increased $432.8 billion, or 21.1%.
Eye on the Week Ahead
Inflation data for October is available this week with the release of the Producer Price Index and the Consumer Price Index. Prices at the producer level have risen at a faster pace than consumer prices. The PPI jumped 0.5% in September and is up 8.6% over the past 12 months. The CPI advanced 0.4% in September and has risen 5.4% since last September.
Have a nice week!
Sincerely,
Robert G. Carpenter