Today’s employment report shows a strong gain of 604,000 private payroll jobs in October. The employment data are consistent with other reports, all of which show real growth in the economy is increasing at close to a 5 percent annual rate going into the final months of this year.
The Week That Was
Once again there was a flurry of good news on the economy, financial front, and policy front.
On the policy front, the election of Republicans to state office in Virginia, a close election in New Jersey and city elections to restore law and order were a clear rejection of woke policies. Look for Democrats to scale back their destructive policy plans or face total defeat in next year’s elections.
For the economy, business surveys from early October indicated healthy growth. The October ISM report on business conditions shows manufacturing activity continuing to expand at relatively healthy pace.
Production and new orders registered a healthy reading of 60 while employment rose slightly to 52 (50 is no change).
The survey for service companies was even stronger with a reading of 70.
As with manufacturing, the employment reading was 52.
Prices continued to rise very rapidly with all businesses showing readings in the 80s.
Weekly unemployment numbers continue to trend lower. Initial weekly unemployment claims for October were 287,000, down from 341,000 in September. The number of people receiving insured unemployment payments in mid-October was 2.1 million, down from 2.8 million in mid-September.
Things to Come
The main economic news this coming week will be on inflation. Tuesday and Wednesday we’ll have October data for producer prices and consumer prices.
Producer prices rose at a 20 percent annual rate in September. October is shaping up to be even worse. Commodity prices soared in October with oil up 13 percent. Look for the October report on producer prices to be well into the double-digits.
In spite of sharply higher producer prices in September, consumer prices moderated a bit. September consumer prices rose at annual rates of 3% to 5%. The more moderate increase in consumer prices is due to a more stable wage component.
However, as wage increases continue, there will be upward pressure on consumer prices. I anticipate consumer prices will rise by at least 5 percent going into next year. With the continuation of rapid spending, inflation can go even higher.
Market Forces
Another week, another series of new highs for stock prices.
All the key indexes surged higher this past week. Small cap ETFs led with gains of 4 percent, the Nasdaq rose 3 percent, the S&P500 2 percent, the Dow up 1 percent.
Financial markets improved as interest rates declined in the wake of the Fed’s taper announcement.
For stocks, the latest surge brings the S&P500 to 33 percent above its fundamental value.
The combination of low interest rates and the Fed’s promise to keep them low until at least the middle of next year, point to the potential for additional increases in stocks. However, the higher they go, the greater the risk an abrupt surge in interest rates will send them tumbling down.
Outlook
Economic Fundamentals: neutral
Stock Valuation: S&P 500 over-valued 33%
Monetary Policy: expansive
