Shaky confidence
For being historically one of the slowest weeks in the market (week before LDW), there was actually a slew of important economic reports released this past week. We started with the US consumer confidence index, which fell to a six-month low in August driven by concerns about the delta variant and worries about higher food and gas prices. In addition to this low August print, the July number was revised down slightly.
Moral of the story: Even though concerns have caused confidence to pull back a little, consumers are still looking forward to spending money – travel, eating out, back-to-school, PSLs (though too soon for that imho) etc. – and consumers are still flush with cash and supported by really healthy savings rates compared to pre-COVID levels. It’s still a little too soon to tell whether consumer spending will be significantly curtailed by the current concerns, so we’ll have to keep an eye out for indicators in the upcoming months.
Still dealing with backlogs
We also got a read from the ISM’s manufacturing and services indices this week. Both still indicated expansionary environments across the sectors, though both pulled back slightly compared to the prior month. The employment index for the manufacturing survey indicated a slight contraction, compared to the growth last month. The cause behind the headwinds across both indices is the same – backlog of parts and lack of available labor.
Moral of the story: The backlogs in shipping and manufacturing parts is continuing to be a big hinderance in the growth for the economy – there’s an all-time-high number of ships waiting to be offloaded across all the major ports in the country, there aren’t enough truck drivers to transport goods across the country, etc. The other unfortunate piece added into this puzzle is the aftermath of Hurricane Ida, which will likely have a meaningful impact on the economies across the Gulf Coast (from the logistics and consumer standpoints as well as the energy production standpoint). All these things mean that supply can’t keep up with the elevated levels of demand and we see prices continue to rise.
Yikes
The big report of the week was the August jobs report and wow did it disappoint. Economists were expecting 720k new jobs in August and we created only 235k. One of the key sectors where we were seeing jobs coming back in a big way was leisure and hospitality – but that hiring literally came to a standstill in August as delta variant concerns caused many of these businesses to hit pause on their plans. On the positive side, the unemployment rate fell slightly to 5.2% and wage growth continued, marking a 4.3% annual increase.
Moral of the story: Two of the biggest catalysts to the labor market recovery are elevated federal unemployment benefits running out (at the end of next week) and kids going back to school (freeing up parents to return to work). Both of those catalysts are happening in time to be picked up by the September jobs report. So, despite this August report being about as disappointing as this jabroni doing a backflip into a flooded Philly highway this week, I’ll be more interested in the data coming out over the next few months as some of these important labor market catalysts come into play.