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The major indexes ended the week mixed after the S&P Mid-cap 400 Index joined the S&P 500 and Nasdaq Composite indexes in reaching new intraday highs on Thursday. The real estate sector outperformed within the S&P 500, while financials lagged. Trading volumes were generally subdued during what is widely considered the last week of the summer vacation season.
Anticipation of the Labor Department’s closely watched monthly payroll reports loomed large over sentiment through much of the week. On Wednesday, payroll firm ADP released its own tally of August private sector job gains, which came in well below expectations. The bad news was largely taken as good news by many, as it should make the Federal Reserve less likely to begin tapering asset purchases later this year.
The slowdown in employment gains was confirmed in the official August report on Friday, which seemed to provoke a mixed reaction in markets. Nonfarm payrolls grew by 235,000 versus consensus expectations for a gain of around 750,000. Previous months’ gains were revised higher, however, and the unemployment rate fell to a new pandemic-era low of 5.2%. Although the impact of the Delta variant of the coronavirus was clear, with hiring in leisure and hospitality grinding to a halt in August, many observers pointed to constraints in labor supply rather than lower demand. That certainly appears to be the case, as weekly jobless claims fell again to their lowest level since March 2020, and average hourly earnings jumped 0.6% in August, roughly double expectations.
The Delta variant appears to be taking a smaller toll on the manufacturing sector, although companies and suppliers surveyed by the Institute for Supply Management (ISM) reported continued struggles with “record-long raw materials lead times, continued shortages of critical basic materials, rising commodities prices, and difficulties in transporting products.” The ISM’s gauges of both factory and service sector activity—released Wednesday and Friday, respectively—surprised on the upside. Housing market numbers were weaker, with pending home sales falling in July for the second consecutive month.
The big question, heading into September and the beginning of the holiday season, will be what effect the end to the Pandemic Emergency Unemployment Compensation program (part of the March 2020 CARES Act) has on the labor supply shortage that has been plaguing the economy. Most economists expect both the reduction in benefits, as well as children returning to school, will allow many to rejoin the workforce, but there are still many others whose fear of COVID may keep them from seeking employment. Time will tell. In the interim, we pray that all of those with doubts about what to do next remember to seek the counsel and consolation found in Psalm 94:19 (When anxiety was great within me, your consolation brought me joy).
Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights
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