Stocks and long-term bond yields fell again last week as fears of an economic slowdown, both here and abroad, worried investors. Despite a solid labor report, unfavorable reports from domestic and global manufacturers, and an expanding trade deficit might have shook investors. Of the major benchmark indexes, only the tech-heavy Nasdaq posted a weekly gain, bolstered by gains in information technology shares. The Global Dow was hit the hardest, falling almost 2.0%, followed by the small caps of the Russell 2000, the Dow, and the S&P 500, each of which posted weekly losses for the third consecutive week.
LAST WEEK’S ECONOMIC HEADLINES
- September saw 136,000 new jobs added while the unemployment rate fell 0.2 percentage point to 3.5% — its lowest rate since December 1969. Job growth has averaged 161,000 per month thus far in 2019, compared with an average monthly gain of 223,000 in 2018. Over the past 12 months ended in September, hourly earnings have increased 2.9%.The trade deficit increased by $0.9 billion in August to $54.9 billion. August exports were $207.9 billion, $0.5 billion more than July exports. August imports were $262.8 billion, $1.3 billion more than July imports. The August figures showed surpluses in goods trades with South and Central America ($5.0 billion), Hong Kong ($2.2 billion), and the United Kingdom ($0.6 billion). Deficits were recorded with China ($28.9 billion), the European Union ($15.6 billion), Mexico ($8.4 billion), and Japan ($6.1 billion).
- Purchasing managers reported an uptick in production in September, but not enough to save the manufacturing sector from experiencing its worst quarter since 2009. The IHS Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 51.1 in September, slightly higher than 50.3 in August. According to the report, “Expansions in production and new orders remained only modest, meaning firms were encouraged to increase their workforce numbers only tentatively. Business confidence remained relatively gloomy due to muted demand conditions.”
- Respondents in the Institute for Supply Management survey also saw a slowing manufacturing sector. The results from the latest report included a decrease in the purchasing managers index in September from the prior month. New orders rose slightly, while production, employment, deliveries, new export orders, and inventories each declined. Prices rose marginally. On the whole, respondents noted that demand and consumption contracted last month.
- In the services sector, purchasing managers were dovish with respect to growth in September. According to the Non-Manufacturing ISM® Report On Business®, business activity, new orders, and employment fell in September from August. Prices increased in September for the 28th consecutive month. Some of the non-manufacturing (services) industries reporting include utilities, retail trade, construction, accommodation & food services, transportation & warehousing, and health care & social assistance.
EYE ON THE WEEK AHEAD
This week, inflationary measures are in the news with reports on the costs of consumer goods and services in September. In August, both consumer prices and producer prices increased a scant 0.1%, respectively. For the year, the Consumer Price Index is up 1.7% — well below the Fed’s target of 2.0%.