Concerns over the delta variant, slowing economic growth, weakening economic data, and September’s history of weakness pushed markets lower for the week. Value stocks trailed growth in the S&P 500, with consumer staples and utility stocks holding up, while the real estate sector led the declines. The TSX finished the holiday-shortened week down 0.78%; the S&P 500 decreased 1.69%, the Nasdaq fell 1.61%, with the S&P Mid-cap 400 and the Russell 2000 dropping 2.68% and 2.81%, respectively. European markets were also down on the uncertain economic outlook as well as pandemic concerns. In addition, the ECB Central Banker President Christine Lagarde commented that the planned trimming of asset purchases was not tapering but instead a re-calibration of the pace of purchases to deliver favorable financial conditions, which did not inspire investor confidence.
On Wednesday, the Labor Department released their latest JOLTS (job openings) reading coming in at 10.9 million for July, reaching a new high. The revised June number came in at 10.2, indicating a significant jump in July. Healthcare and social services enjoyed the largest gain (+294,000) jobs, followed by financial and insurance (+116,000) and accommodation and food services (+115,000). Hires showed little change for the previous month. The number of hires increased in state and local government education (+33,000) and federal government (21,000). Hires decreased in retail trade (-277,000), durable good manufacturing (-41,000) and in educational services (-23,000). The quits rate remained unchanged at 2.7% or 4 million. For the 12 months ending July, the net new hires are 7 million. Net hires are calculated by hires less separations which include quits, layoffs and discharges, and other separations.1 Recall last week the government reported the economy added 235,000 jobs in August, well below consensus forecasts. The August data does not confirm the July data.
On Thursday, the Labor Department reported initial jobless claims fell to 310,000, a decrease of 35,000 and the lowest weekly initial claims since March 14, 2020. Continuing claims also decreased from the previous week by 255,757 to 11,930,415. This week marks the week when supplemental federal benefits ended.2 Over the next several weeks, the data will provide insight into whether the worker shortages were partly due to the generous federal supplement or a more permanent shift in labor. Additionally, many states ended their programs with little impact on consumer spending; however, a national expiration may have a broader impact.
On Friday, the Department of Labor reported the producer price index for August rose 0.7% versus 1.0% in July. Excluding food and energy, the core index rose 0.3% versus 0.9% in July. For the 12 months ending August, the producer prices are up 8.3%, the most significant gain since November 2010, when the data was first collected. The core index gained 6.3% in the last 12 months, the largest increase for the core index since August 2014, when the data was first calculated.3
On Thursday, President Biden announced his vaccination plan for large employers and federal workers, excluding the Postal workers. Under the executive order, all large employers with over 100 employees must require workers to be vaccinated or submit to weekly testing. Vaccination will be mandatory for all federal workers and contractors. In the coming weeks, unions and some Republican states are expected to challenge the executive order, further dividing the country. As mentioned in past weeks, the division caused by Covid may slow or delay economic recovery. We shall see if the delta variant continues to slow or deaccelerate the growth trajectory in the coming weeks and months.
Sources:
1 https://www.bls.gov/news.release/jolts.nr0.htm
2 https://dol.ny.gov/unemployment/certify-weekly-unemployment-insurance-benefits
3 https://www.marketwatch.com/story/u-s-producer-prices-rise-at-softer-pace-in-august-11631277830
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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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