Today’s jobs report indicates employment continued to grow at a very rapid rate in July. With other indicators showing strong new orders, growth should continue at rapid rates in the months ahead.
The Week That Was
Today’s employment report shows private payrolls rose by 703,000 in July.
In spite of the surge in jobs over the past six months, payrolls remain 4 percent below their pre-Covid peaks. The increase in jobs in July helped drive the unemployment rate down to 5.4 percent.
The ISM survey for manufacturers in July showed only a slight change from June.
Readings for the overall index (59.5) and new orders (64.9) both were down 1 percentage point. The price component was also down but remained very high.
The July ISM survey for service companies rose to 64 from 60. New orders increased to 64 from 62. This points to further gains in activity in the months ahead. The price component rose to 82 from 80. Inflation is becoming more ingrained in the economy.
The latest weekly unemployment data show little change.
Initial unemployment claims leveled off near 400,000. In contrast, the number receiving unemployment benefits resumed its downward trend to 3.0 million, a decline of 200,000.
Vehicle sales were one of the few reports of weakness. Automakers reported a shortage of computer chips.
A trip to dealerships confirms there are few new autos available. The shortage is a temporary problem related to excessive demand. Auto sales should soar in the fall as the pipelines fill.
Things to Come
The only significant economic reports coming next week deal with inflation rates for July. The consumer price index is due on Wednesday, and producer prices are due on Thursday.
All indications point to a continuation of the double-digit annual rate price increases of recent months.
Market Forces
Stocks moved broadly higher for the second straight week. All major indexes hit all-time highs.
Small caps also advanced, but remain 4 percent to 5 percent below their highs.
Stocks keep moving higher, behaving like the little engine that could. They are reaching a point above their 50-day average which often leads to at least a short-term correction. However, unprecedented monetary ease should continue to limit any downward correction.
Business surveys show business activity continued to increase at a rapid rate in July. This raises the odds total spending (GDP) will grow at double-digit annual rates for the third consecutive quarter.
Investors ignored concerns surrounding Covid. As with the flu, Covid and its offspring variants will be with us for a while.
Recent data from the United States, Israel, and the UK suggest the vaccine is not working as well as expected. Moderna appears to to confirm this by announcing vaccinated people might need a booster after six months. Cha-ching!
The good news is the Association of Associatioin of American Physicians & Surgeons (AAPS) has very good treatments for Covid, if begun in the early stages.
Unfortunately, the Centers for Disease Control and Prevention and National Institute of Health continue to ignore the AAPS’s advice. They claim their job is to advise on limiting the spread of the disease, not providing medical advice.
Depsite the potential for a setback in stocks, equity portfolios should continue to maintain a relatively large percentage of stocks. With historically low interest rates, stocks remain very attractive.
Outlook
Economic Fundamentals: positive
Stock Valuation: S&P500 overvalued by 25 percent
Monetary Policy: expansive