What We Are Watching This Week
- US Consumer Credit
- US Consumer Price Index
- Producer Price Index
Highlights From Last Week
- ISM Manufacturing and Services
- Job Openings
- ADP Employment
- US Employment Report
The S&P 500 Index experienced its sharpest weekly decline in 18 months, primarily driven by concerns about an economic slowdown. Information technology stocks led the drop, with NVIDIA’s shares falling significantly amid rumors of a possible Justice Department antitrust investigation, causing a $300 billion loss in market value. Energy stocks declined due to falling oil prices, while defensive sectors like utilities, consumer staples, and real estate fared better. Some attributed the decline to investor anxiety over September’s historically poor stock performance, with the S&P 500 averaging a 0.7% loss since 1950. Over the last several years, September has seen declines of 4.9%, 9.3%, 4.8%, and 3.9%. As investors returned from the summer holiday, increased trading volumes were observed, with markets closed Monday for Labor Day.
Canadian equities wrapped up a challenging week with a selloff, as investors shrugged off employment data from Canada and the U.S. The Canadian dollar edged down by 0.04 cents to 73.73 cents. U.S. Statistics Canada reported Friday that employment in August remained relatively unchanged (+22,000; +0.1%), while the employment rate dipped by 0.1 percentage points to 60.8%. The unemployment rate rose by 0.2 percentage points to 6.6%.
The pan-European STOXX Europe 600 Index dropped 3.52% in local currency terms, driven by renewed concerns over the global economic growth outlook. Major stock indexes also saw declines, with France’s CAC 40 falling 3.65%, Germany’s DAX down 3.20%, and Italy’s FTSE MIB losing 3.15%. The U.K.’s FTSE 100 slipped 2.33%. Meanwhile, government bond yields in the eurozone and the U.K. generally declined.
The U.S. manufacturing sector is becoming a growing economic drag, as the Purchasing Managers’ Index (PMI) fell to 47.9 in August, the lowest since December. This marks the second consecutive month of decline, driven by falling orders and rising inventories. Factories are cutting production due to weak demand, with new orders in August dropping at the fastest pace in 14 months and export orders declining sharply. Rising unsold stock and fewer orders point to worsening production trends, the most pessimistic outlook in 18 months. Manufacturers are also reducing payrolls and purchasing fewer inputs amid concerns about excess capacity. Although this has eased supply chain pressures, input costs continue to rise due to higher wages and shipping rates. The situation suggests that the drag on the sector could worsen in the coming months.1
The U.S. manufacturing sector remains in a deep slump, with the Institute for Supply Management (ISM) index showing contraction for the fifth consecutive month. The ISM index rose slightly to 47.2% in August from 46.8% but remains below the 50% threshold, indicating ongoing contraction. Key metrics include a drop in new orders to 44.6%, the lowest in two years, and a decline in production to 44.8%, the weakest since May 2020. While the employment gauge increased, it still signals weakness. Manufacturers hesitate to invest due to high interest rates and uncertainty around the upcoming presidential election. Although lower interest rates are expected to help the sector, the benefits may not materialize until after the election, with many businesses delaying projects until late 2024.2
According to the latest Services ISM Report on Business, the U.S. services sector continued to expand in August, marking the second consecutive month of growth. The Services PMI rose slightly to 51.5%, reflecting sector expansion for the 48th time in the last 51 months. The Business Activity Index registered 53.3%, a slight dip from July’s 54.5% but still indicating growth. New Orders increased to 53%, and the Employment Index also showed modest expansion at 50.2%, although it was slightly lower than July’s figure. Supplier deliveries improved, with the index rising to 49.6%, signaling faster delivery times. Prices continued to rise, with the Prices Index at 57.3%, while inventories expanded after two months of contraction, reaching 52.9%. However, the Backlog of Orders Index fell into contraction at 43.7%. Ten industries reported growth; overall, the sector has expanded in 18 of the last 20 months. Despite the slow growth, panelists expressed concerns over high costs and interest rates affecting business performance. Companies ‘ inventory management remains a focus, even as the Inventories Index moves into expansion territory. The August reading aligns with the 2024 average for the Services PMI.3
The U.S. Bureau of Labor Statistics reported that job openings remained steady at 7.7 million as of the last business day in July. Hires were also relatively unchanged at 5.5 million during the month. Total separations rose slightly to 5.4 million, with quits (3.3 million) and layoffs and discharges (1.8 million) showing little movement.4
On Wednesday, the Bank of Canada lowered its overnight rate to 4.25%, with a corresponding Bank Rate of 4.5%, continuing its balance sheet normalization policy. Global economic growth in the second quarter was around 2.5%, with the U.S. outperforming expectations due to consumer spending, while Europe’s growth was driven by tourism. Inflation is easing in both regions. In China, weak domestic demand is slowing growth. Canada’s economy grew by 2.1% in the second quarter, slightly above forecasts, though activity weakened in June and July. Inflation slowed to 2.5%, but shelter costs remain a significant contributor. The Bank reduced rates by 25 basis points as inflationary pressures ease, though it continues to monitor opposing forces like high shelter costs. Future rate decisions will be data-driven, focusing on restoring price stability.5
In August, employers added just 99,000 jobs, well below the forecast of 140,000, signaling a continued slowdown in the labor market, according to ADP. This marks the weakest report since 2021. Gains were concentrated in the construction, education, and health sectors, while professional services and manufacturing saw declines. Large companies (250+ employees) accounted for most of the job growth. Wages rose at an annual rate of 4.8%, outpacing inflation but remaining flat month-to-month. The report follows a Labor Department release showing job openings fell to 7.7 million in July, down from 7.9 million in June and 1.1 million fewer than a year ago. Economists predict a gain of around 145,000 jobs in the upcoming nonfarm payrolls report for August. The Federal Reserve, monitoring these trends, may consider a larger-than-expected interest rate cut at its September meeting as the softer labor market data adds pressure for action. The ADP report suggests hiring is slowing rather than mass layoffs, and wage growth stabilizes after a post-pandemic surge.6
For the week ending August 31, seasonally adjusted initial jobless claims totaled 227,000, a decrease of 5,000 from the previous week’s revised figure of 232,000 (upwardly adjusted by 1,000). The four-week moving average was 230,000, down by 1,750 from the prior week’s revised average of 231,750. As of August 17, the total number of continued weeks claimed for benefits across all programs was 1,867,770, a decrease of 15,306 from the previous week. In comparison, 1,814,717 claims were filed during the same week in 2023.7
In August, total nonfarm payroll employment increased by 142,000, with notable job gains in construction and healthcare. The unemployment rate remained steady at 4.2%, with 7.1 million unemployed people. These figures are higher than a year ago when the unemployment rate was 3.8%, and 6.3 million people were unemployed. Unemployment rates across various demographic groups, including adult men, women, teenagers, and racial/ethnic groups, showed little change. The number of people on temporary layoff decreased by 190,000 to 872,000, offsetting a rise from the previous month, while permanent job losses remained unchanged at 1.7 million. The labor force participation rate held steady at 62.7%, and the employment-population ratio remained at 60.0%. Part-time employment for economic reasons was unchanged at 4.8 million, up from 4.2 million a year earlier. These individuals preferred full-time work but were limited to part-time due to reduced hours or the inability to find full-time jobs.8
| WK | Year to Date | |
| Dow | -2.93% | 7.05% |
| S&P500 | -4.25% | 13.39% |
| Nasdaq | -5.77% | 11.19% |
| S&P400 Mid-cap | -4.92% | 5.68% |
| Russell | -5.69% | 3.17% |
| TSX | -2.40% | 8.79% |
| Oil | -7.30% | -4.80% |
- https://www.spglobal.com/marketintelligence/en/mi/research-analysis/us-manufacturing-pmi-sends-warning-signals-on-economic-conditions-Sep24.html
- https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/august/
- https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/august/
- https://www.bls.gov/news.release/jolts.nr0.htm
- https://www.bankofcanada.ca/2024/09/opening-statement-2024-09-04/
- https://adpemploymentreport.com/
- https://www.dol.gov/ui/data.pdf
- https://www.bls.gov/news.release/empsit.nr0.htm
Important Information:
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF).
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