A rally last Friday helped drive stocks generally higher last week. The Dow, the Russell 2000, and the Global Dow were able to post gains, while the Nasdaq and the S&P 500 closed the week in the red. Declines in the market sectors were broad-based, with only energy (5.8%) climbing higher. Growth shares fared worse than value stocks, as evidenced by the dip in the tech-heavy Nasdaq. While the federal government averted a partial shutdown, no progress was made on raising the federal debt limit. Investors also saw the prospects of inflationary pressures continuing as supply constraints are driving production costs higher. Ten-year Treasury yields rose 13 basis points to 1.46%. Some analysts suggest that a spike in Treasury yields may be reflective of investors’ expectations that the Federal Reserve could start tightening its monetary policies as early as November. Crude oil prices increased more than $5.00 per barrel. The dollar continued its bullish run, while gold prices dipped.
Last Week’s Economic News
• The economy accelerated at an annualized rate of 6.7% in the second quarter, according to the third and final estimate from the Bureau of Economic Analysis. The increase in second-quarter GDP reflected continued economic recovery, reopening of establishments, and an ongoing government response related to the COVID-19 pandemic. The personal consumption price index, a measure of inflation, increased 6.5% in the second quarter. Excluding food and energy prices, the price index advanced 6.1%.
• According to the latest report from the Bureau of Economic Analysis, personal income inched up 0.2% in August after rising 1.1% in July. The small August increase in personal income was likely impacted by a 3.7% decline in unemployment insurance benefits.
• New orders for durable goods increased 1.8% in August. This increase, up 15 of the last 16 months, followed a 0.5% rise in July.
• The advance report on international trade in goods revealed the trade deficit expanded by 0.9% in August. Exports of goods increased by 0.7%, while imports of goods grew by 0.8%. Since August 2020, exports have increased 25.6% and imports have climbed 17.8%.
• According to the latest report from IHS Markit, the purchasing managers’ index dropped to a five-month low in September, as production was hampered by material and labor shortages. As a result of supply-chain bottlenecks, backlogs of work have risen at the fastest pace on record. Prices continue to rise as the rate of input cost inflation, which softened only slightly from August’s series record, caused firms to raise their charges at an unprecedented pace.
• The number of new claims for unemployment insurance benefits rose for the third consecutive week.
Eye on the Week Ahead
Employment figures for September are available at the end of this week. While the jobs sector has been steadily improving, the pace of new hires has slowed. Since June and July, when more than 900,000 new jobs were added each month, August saw a job increase of only 235,000. On the other hand, earnings have increased 4.3% since August 2020.
Have a nice week!
Sincerely,
Robert G. Carpenter