Stocks closed last week generally higher on the heels of a solid jobs report, which may have quelled worries that economic growth was slowing. Nevertheless, equity returns were volatile for much of the week, reflecting ongoing uncertainty as variant strains of the virus spread and concerns rose over the possibility that the Federal Reserve may begin reeling in its asset-purchasing program sooner than expected. Financials led the market sectors, advancing 3.6% for the week, followed by utilities, which rose 2.3%. Most of the remaining sectors increased less than 1.0%, while consumer staples dipped 0.6%. The benchmark indexes generally posted weekly gains, other than the Russell 2000, which fell 1.2%. Crude oil prices closed the week at $68.50 per barrel, down more than 7.0% from the prior week’s closing price. Gold slipped, the dollar rose, and the yield on 10-year Treasuries climbed higher.
Last Week’s Economic News
- Payrolls rose by 943,000 in July following an increase of 938,000 new jobs in June. The unemployment rate fell by 0.5 percentage point to 5.4%, and the number of unemployed persons fell by 782,000 to 8.7 million. While these rates are well below their highs from the period of February-April 2020, they remain well above their levels prior to the pandemic. In July, 13.2% of employed persons teleworked because of the pandemic, down from 14.4% in the prior month. Last month, 5.2 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic.
- According to IHS Markit, operating conditions in the manufacturing sector continued to improved in July, with notable expansion in output and new orders, which increased at the second-fastest pace since data collection began in May 2007. Costs and backlogs continued to rise as supplier shortages and delays exerted upward pressure on input costs and hampered firms’ ability to process incoming new work.
- The IHS Markit US Services PMI Business Activity Index registered 59.9 in July, down from 64.6 in June. A reading above 50.0 indicates growth, so the services sector continued to expand in July, but at a slower pace than the previous month. In fact, the July rate of expansion in services was the slowest since February, due primarily to a slower rise in new business. Nevertheless, input costs and output charges escalated in July despite their respective rates of inflation softening from May’s historic highs.
- According to the latest data from the Bureau of Economic Analysis, the international goods and services trade deficit for June was $75.7 billion, an increase of 6.7% over the May deficit.
- For the week ended July 31, there were 385,000 new claims for unemployment insurance, a decrease of 14,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended July 24 was 2.1%, a decrease of 0.3 percentage point from the previous week’s rate.
Eye on the Week Ahead
Inflationary pressures have been rising. Since June 2020, the Consumer Price Index has climbed 5.4% and the Producer Price Index has increased 7.3%. The data for July is available this week for both the CPI and the PPI. Those who study this data expect both indexes to increase by roughly 0.5% in July.
Have a nice week!
Sincerely,
Robert G. Carpenter