Markets In Holding Pattern?
Disappointing jobs data gives hope to investors of delayed tapering.
Extended pandemic unemployment benefits quietly expire setting the stage for possible job growth.
Encouraging numbers over the weekend could point to COVID cases plateau.
Equity markets appear to be in a holding pattern as investors attempt to guess when Tapering will begin by the Fed. The Labor Market hit a speed bump in August as both the government's Jobs Report and the ADP Private Employment report disappointed. The difference between the two reports was that the ADP number showed more than 200,000 jobs added in the Leisure & Hospitality sector, while the government's report showed basically no change in jobs for that sector. That difference could lead to a revision higher in next month's report. The number of jobs for July was revised higher by the government, making July's growth exceed 1 million new jobs.
The extended unemployment benefits related to the pandemic quietly ended this weekend, making at least 7 million Americans receiving two federal unemployment checks begin the prospects of looking for a job. And, there are jobs a plenty. Last month's report showed at least 10 million jobs available and this week we'll get the latest numbers on Job Openings. Meanwhile, a Goldman Sachs report found evidence that the benefit expiration in 26 states over the past few months increased the rate at which unemployed workers became employed. The Foundation for Government Accountability found that job creation in Arkansas, one of the states which ended the extended benefits, nearly doubled in the two weeks after payments ended. August's Jobs Report will hopefully be a hiccup should people begin re-entering the workforce as extended benefits have now ended.
The economic releases were mixed last week. While the numbers on jobs disappointed, the Unemployment Rate declined and Hourly Earnings improved for workers. Construction Spending was higher and Factory Orders, though below the previous month, surprised the market to the upside. However, some regional manufacturing data disappointed, Consumer Confidence declined dramatically, and Pending Home Sales declined. Unit Labor Costs increased by more than 1% last month, adding to inflation concerns. This week, we'll get the Producer Price Index numbers, which are expected to show continued increase. Producer costs are eventually passed down to consumers, adding to inflationary costs in the economy.
On the COVID front, there are some signs that cases and deaths may have plateaued, and the reproduction rate of infections has slowed. State that were fraught with Delta cases just over a month ago are now seeing cases decline. Cases in Missouri, as measured by the 7-day average, are down 23%, in Florida down 48%, and in Mississippi down 32%. The graphics below show the map of the U.S. and the reproduction rate from August 1st to September 1st. The former map shows many areas of red (higher reproduction rates) versus the latter map which shows more white and black areas (lower reproduction rates. This is encouraging news and will hopefully bear out in the coming days that perhaps we've reach the peak in cases here in the U.S.