MARKET UPDATE: S&P FLASH SERVICES AND MANUFACTURING, CONSUMER CONFIDENCE, DURABLE GOODS, PERSONAL CONSUMPTION EXPENDITURES

What We Are Watching This Week

  • ISM Manufacturing and Services
  • US Job Openings
  • SDP Employment Report
  • US Employment report

Highlights From Last Week

  • S&P Flash Services and Manufacturing  
  • Consumer Confidence 
  • Durable Goods 
  • Personal Consumption Expenditures 

The Dow Jones Industrial Average and the S&P 500 Index reached record highs as investors responded positively to new stimulus measures from China. Stocks in the chemicals and materials sectors performed well, driven by expectations of increased Chinese demand. Copper prices also rose, boosting hopes that “Doctor Copper” might signal a healthier global industrial economy again. Technology stocks outperformed, buoyed by reports of a potential Intel takeover and news that NVIDIA’s CEO had halted sales of his shares in the company. Additionally, Micron Technology surged after issuing an upbeat forecast for artificial intelligence demand, boosting the semiconductor sector.

Equities in Canada’s largest market ended the week on a down note, though they still finished the week in positive territory. The Canadian dollar dipped by 0.08 cents to 74.12 cents U.S. On the economic front, July’s GDP grew by 0.2%, driven by gains in both services-producing and goods-producing industries.

In Europe, the pan-European STOXX Europe 600 Index rose by 2.69% in local currency terms, as signs of slowing business activity fueled hopes for interest rate cuts. China’s announcement of a new economic stimulus package further lifted market sentiment. Major European stock indexes saw significant gains: Germany’s DAX increased by 4.03%, France’s CAC 40 Index by 3.89%, and Italy’s FTSE MIB by 2.86%. The U.K.’s FTSE 100 Index rose by 1.10%. However, business activity in the eurozone contracted unexpectedly in September, with S&P Global’s purchasing managers’ indexes (PMIs) showing a sharp decline in new orders. The initial reading of the seasonally adjusted HCOB Eurozone Composite PMI Output Index dropped to 48.9 from 51.0 in August (a PMI below 50 indicates contraction). Services activity slowed, impacted by the fading boost from the Paris Olympics, while the manufacturing sector saw a faster decline. In Germany, business activity fell to its lowest level in seven months, suggesting the economy may face a second consecutive quarterly drop in output.

According to flash PMI survey data from S&P Global, U.S. business activity continued to grow strongly in September, indicating sustained economic expansion throughout the third quarter. While there was only a slight slowdown in September, growth disparities remained evident. The service sector saw solid expansion, contrasting with a modest decline in manufacturing output for the second consecutive month. Order book growth moderated, and business expectations for the year ahead dropped to nearly a two-year low, reflecting increased uncertainty surrounding the upcoming presidential election. As a result, companies slowed hiring and reduced employment for the second month in a row. Prices charged increased at their fastest rate in six months, driven by accelerating input costs, which reached a one-year high. The acceleration in selling price inflation was widespread across goods and services, each reaching a six-month high. Notably, input cost growth in the service sector hit a 12-month high, partly due to reports of rising wages. The U.S. consumer has been resilient, helping sustain economic growth above its long-term trend. However, Chris Williamson, chief business economist at S&P Global Market Intelligence, pointed out potential concerns: “There are some warning lights flashing, notably the reliance on the service sector for growth while manufacturing continues to decline, and the concerning drop in business confidence.” 1

Key Index Readings:

  • Flash U.S. PMI Composite Output Index at 54.4 (August: 54.6), a 2-month low.
  • Flash U.S. Services Business Activity Index at 55.4 (August: 55.7), a 2-month low.
  • Flash U.S. Manufacturing Output Index at 48.9 (August: 48.2), a 2-month high.
  • Flash U.S. Manufacturing PMI at 47.0 (August: 47.9), marking a 15-month low.

Home prices in the 20 largest U.S. metro areas reached a record high in July, but the growth rate has slowed significantly due to high prices and rising mortgage rates impacting buyers. The S&P CoreLogic Case-Shiller 20-city house-price index increased by 0.3% from the previous month and was up 5.9% over the last 12 months, marking a slowdown from June’s 6.5% increase. This is the slowest rate of appreciation for the index since November 2023, falling slightly below economists’ expectations of a 6% rise.2

A separate report from the Federal Housing Finance Agency also showed that home prices were up by 0.1% in July compared to the previous month and 4.5% in the past year.  “For the third consecutive month, U.S. house prices showed little movement,” the agency said. “Gradually declining mortgage rates and relatively flat house prices may improve housing affordability.”  In July, the median price of a resale home was $421,400, and that of a newly built home was $436,700. The silver lining from this report is that even though home prices continue to reach new heights, the pace of appreciation has significantly slowed over the last few months. But it’s unclear if prices will slow even further. Starting in August, mortgage rates have dropped considerably, which increases buyers’ purchasing power. And that could draw more buyers off the sidelines and increase competition that, in turn, pushes prices even higher.3

Consumer confidence dropped in September to a three-month low, ahead of a crucial U.S. election, with voters likely influenced by which presidential candidate they believe will better manage the economy. Americans expressed growing concerns over the job market due to a steady increase in unemployment and greater difficulty in finding work. High living costs, after years of severe inflation, added to their distress. The current confidence gauge remains far below the pre-pandemic monthly average of 128 from 2019. The measure reflecting consumers’ views on the current state of the economy plunged 10 points to 124.3, its lowest since March 2021. Anxiety increased around job availability, business conditions, and future incomes. The Conference Board reported that the overall consumer confidence index fell to 98.7 in September, down from a revised 105.6 in August—the steepest monthly decline since mid-2021. Economists The Wall Street Journal surveyed had expected the index to rise to 104.0. Consumer confidence often indicates whether the economy is improving or deteriorating.4

On Wednesday, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced sales of newly built homes in the U.S. decreased by 4.7% in August to an annual rate of 716,000, down from 751,000 in July, as high interest rates and home prices impacted buyers. Despite the dip, sales remained at their highest level since April and surpassed Wall Street’s expectations of 700,000. Regionally, sales rose 2.7% in the South but declined sharply in the Northeast (27.3%) and the West (17.8%). New home sales are up 9.8% compared to a year ago. As reflected in mortgage application data, falling mortgage rates could affect builders’ demand, with buyers showing hesitancy. Builders offer incentives, such as Toll Brothers’ temporary 2.99% mortgage rate for some buyers, to attract interest. Optimism remains high among builders, with expectations of rising demand, as a recent confidence survey indicates. Economist Stephen Stanley noted the resilience of new home sales over the summer as a positive sign for builders despite concerns over unsold inventory. New-home completions reached their highest level since 2009. The median sales price of a new home in August fell to $420,600 from $429,000 in July, while the supply of new homes increased by 6.8%. The data is volatile and often revised; July’s new-home sales were adjusted down from an initial 751,000 to 739,000.5

For the week ending September 21, the U.S. Department of Labor’s seasonally adjusted initial claims for unemployment benefits were 218,000, a decrease of 4,000 from the previous week’s revised level of 222,000 (initially reported as 219,000). The four-week moving average fell by 3,500 to 224,750 after last week’s average was revised up by 750 to 228,250. The total number of continued weeks claimed across all benefit programs for the week ending September 7 was 1,693,135, down by 34,244 from the prior week. In comparison, 1,669,558 claims were filed in the same week in 2023.6

In August, new orders for U.S. manufactured durable goods rose slightly by $0.1 billion to $289.7 billion, marking an increase in six of the last seven months. Excluding transportation, new orders increased by 0.5%, but fell by 0.2% when excluding defense. Shipments of durable goods declined by $1.6 billion, primarily driven by a decrease in transportation equipment shipments. Unfilled orders grew by $5 billion, continuing a nearly consistent rise over the last 49 months, with transportation equipment leading the increase. Inventories rose by $0.5 billion, with transportation equipment contributing significantly.7

For capital goods:

  • Nondefense: New orders fell by 1.3%, and shipments decreased by 1.6%. However, unfilled orders and inventories both rose.
  • Defense: New orders increased by 5.3%, while shipments dropped by 1.5%. Unfilled orders and inventories both saw increases.

In August, the Federal Reserve’s preferred measure of underlying U.S. inflation, the core personal consumption expenditures (PCE) price index, rose modestly by 0.1%, indicating a cooling economy. On a three-month annualized basis, the index increased 2.1%, aligning with the Fed’s target. Real consumer spending grew just 0.1%, showing frugality among consumers. Service prices, excluding housing and energy, rose by 0.2%, while goods prices, excluding food and energy, fell by 0.2%. Overall spending was essentially unchanged, with services seeing a 0.2% rise and goods remaining flat after a July gain. Wages increased, but overall disposable income growth slowed due to declines in proprietors’ income, interest income, and dividend income. The PCE price index increased 0.1% month-over-month and 2.2% year-over-year. The PCE price index increased by 2.7% annually, excluding food and energy. These inflation and spending figures suggest the economy is gradually slowing and may encourage the Federal Reserve to maintain or further reduce interest rates. Personal income increased by 0.2%, and the savings rate eased to 4.8%. Starting in January 2019, the data has undergone revisions, reflecting changes in monthly income, spending, and savings estimates.8

WKYear to Date
Dow0.59%12.27%
S&P5000.62%20.30%
Nasdaq0.95%20.71%
S&P400 Mid-cap0.51%12.14%
Russell-0.14%9.75%
TSX0.40%14.30%
Oil-3.50%-4.30%
  1. https://www.pmi.spglobal.com/Public/Home/PressRelease/35c60149cdbe461fb6bc3c959a58a55
  2. https://www.spglobal.com/spdji/en/index-announcements/article/sp-corelogic-case-shiller-index-all-time-highs-continue-in-july-2024/
  3. https://www.fhfa.gov/sites/default/files/2024-09/FHFA-HPI-Monthly_09242024.pdf
  4. https://www.conference-board.org/topics/consumer-confidence
  5. https://www.census.gov/construction/nrs/current/index.html
  6. https://www.dol.gov/ui/data.pdf
  7. https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf
  8. https://www.bea.gov/news/2024/personal-income-and-outlays-august-2024

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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The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavours to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.

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