It’s kind of a gray day in Detroit. It is raining. The stock market sort of matched today’s ugliness at the end of last week. What goes up must come down.
As usual, this report includes Econoday analysis.1 Let’s talk about these reports!
ISM manufacturing index
One of the most followed manufacturing indexes posted its best number since January of last year in August, at 56, up 1.4 points. As a reminder, a number greater than 50 indicates growth in the sector. The number easily exceeded expectations.
At least in part, this is due to the extent of the contraction in manufacturing following the government shutdowns, but the numbers are still good. New orders reached a very high level of 67.6 on the scale. Order books also increased by almost 3 points to 54.6. This is encouraging because factories may seek to hire to reduce the backlog.
However, the bad news is that we are not there yet. People continue to be made redundant, albeit at a slower pace. Sentiment is up 2.1 points, but at 46.4 it remains below the breakeven point.
However, the rest of the report was positive, with inventories falling, material prices rising and supplier deliveries slowing. All of this is a sign of higher demand, but it would be good to see the number of jobs improve.
MBA Mortgage Applications
Mortgage applications fell 2% last week on a seasonally adjusted basis and are down 3% overall. Refinancing requests are down 3%, but they are still 40% higher than they were a year ago at this time. On the purchasing side, requests also fell 3%, but were 28% above last year’s levels.
Rates are still favorable according to this index, down 3 basis points to 3.08%.
The US trade deficit swelled in July, up $ 10.1 billion to $ 63.6 billion. In addition, the figures for July have been revised so that the deficit has increased by $ 2.8 billion.
Large increases in imports were behind this increase. There was a major recovery in global production of cars and trucks, and $ 7.7 billion of the increase came in the form of auto imports. Capital goods and industrial supplies are also on the rise, with a significant increase in imports of civil aircraft.
Auto gains were not confined to the import side, with vehicle exports also increasing by $ 7.7 billion. Gains were smaller in capital goods, industrial supplies and food as well.
You could be forgiven if in the deluge of news we are exposed to now, you missed the warming of trade tensions between China and the United States. It’s a back-and-forth that has been intensified by the rhetoric around COVID-19. The latest figures show that the trade deal has not had much effect. The United States still has a $ 28.3 billion deficit with China.
America still maintains a large surplus in services, despite falling from $ 800 million to $ 17.4 billion.
Unemployment benefit claims
I never thought I would type the following sentence: There was a serious controversy sparked last week with the publication of new jobless claims. To understand why, we should probably step back a bit.
A few weeks ago, the Ministry of Labor announced that it would change the calculations of compensation claims to prevent the high levels of unemployment claims we have seen due to COVID-19 completely remove the seasonal adjustment. in the future.
However, questions began when the report was released last Thursday. Although the formula has been changed, they did not apply the new formula to previous reports from last year, preventing a true comparison and apparently leading to misunderstandings. adjusted numbers that were skewed last week.
The Ministry of Labor apparently not planning adjust the previous weeks until early next year when it does its annual review of seasonal adjustment factors.
To give you an idea of the incongruity here, on a seasonally adjusted basis, initial claims decreased by 130,000 to 881,000. Meanwhile, the 4-week moving average of initial claims fell from 77,500 to 991,750. .
When we look at the unadjusted numbers, there were 833,352 state-level unemployment insurance claims (not including those who qualify for special unemployment assistance in the event of a pandemic that ends on January 1). While the number appears smaller, it actually represents an increase of 7,591 from the previous week. No 4 week average is included.
Accurate seasonal adjustment has real value because it eliminates the normal ups and downs associated with changing retail seasons and the majority of teachers being off during the summer. (Note: It’s the first day back to school for many here in Michigan. Good luck to teachers across the United States adjusting to our new world!)
Until the calendar changes to January, I will include both seasonally adjusted and unadjusted numbers. This should give us a basis for a week to week comparison.
On a seasonally adjusted basis, outstanding claims decreased from $ 1.238 million to $ 13.254 million. The unemployment rate fell 0.8 points to 9.1%. Meanwhile, on an unadjusted basis, the unemployment rate was 9%, down 0.5%. Those claiming longer-term benefits fell from 764,713 to 13.104 million.
The unemployment rate fell from 1.8% to 8.4% in August according to the latest employment report. The US economy has seen 1.371 million jobs added to the non-farm payroll. This included 1.027 million jobs added to the private payroll and 344,000 jobs added in the public sector, boosted by the hiring of 238,000 workers to complete the census.
Breaking down earnings by industry, 29,000 jobs were added in manufacturing. There were 16,000 jobs open in construction. Auto dealers saw a hiring surge, creating 22,000 jobs, contributing to retail jobs which increased by 248,900 overall. Leisure and hospitality jobs increased by 174,000 with an increase of 197,000 jobs in professional and business services.
We still have a little way to go as the number of jobs is 11.5 million lower than it was in February before COVID-19. Mining employment also continues to move in the wrong direction, down 2,000 as the industry has been hit hard by the virus.
Looking at some big numbers, the labor force participation rate rose 0.3% to 61.7%, while there was a 0.4% increase in average hourly earnings in August. They increased by 4.7% over the year. The average work week was also 6 minutes longer at 34 hours, 36 minutes.
Movements in mortgage rates were a bit mixed last week. They always stay incredibly low whether you are looking to buy or refinance. If you are interested, talk to one of our mortgage experts.
The average rate on a 30-year fixed mortgage with 0.8 points of fees paid rose a few basis points to 2.93%, from 3.49% at the same period in 2019.
Meanwhile, the 15-year average fixed mortgage rate with 0.8 points paid fell 4 basis points to 2.42%. This fell 3% a year ago.
Finally, the average rate of a 5-year Treasury-indexed variable-rate hybrid mortgage increased by 2 basis points to 2.93% with 0.2 points paid, up from 3.3% last year.
The tech equity market has been as hot as any other for quite some time now. You could think of it as heating something in the microwave. The rapid rise in temperature is somewhat analogous to the rise in stock prices that we have seen in recent times.
Every now and then, the market takes a deep breath and lets the food cool before it burns its palate. While technology has recently generated tremendous growth, the market is taking a closer look at the real value of these companies. They are still attractive investments in many cases, but not to the point of irrationality of the market.
The correction in tech stocks drove markets a bit lower last week, the Big Five – Alphabet, Amazon, Apple, Facebook and Microsoft – all down sharply and lower market indices at large.
The Dow Jones Industrial Average lost 159.42 points on Friday to close at 28,133.31, down 1.04% for the week. Meanwhile, the S&P 500 ended the day at 3,426.96, down 2.31% on the week and 28.1 points on the day. Finally, the Nasdaq fell 3.38% on the week, down about 1.3% on the day to 11,313.13.
The coming week
Wednesday September 9
MBA Mortgage Applications (7 a.m. ET) – The Mortgage Applications Index measures applications to mortgage lenders. This is a leading indicator of single-family home sales and housing construction.
Thursday September 10
Unemployment Claims (8:30 a.m. ET) – New jobless claims are compiled each week to show the number of people applying for UI for the first time. An upward trend suggests a deterioration in the labor market. The 4-week moving average of new claims dampens weekly volatility.
Producer Price Index (PPI) (8:30 a.m. ET) – The Producer Price Index measures the average change over time in prices received by domestic producers for the sale of goods and services.
Friday September 11
Consumer Price Index (CPI) (8:30 a.m. ET) – The Consumer Price Index measures changes in the price of a fixed basket of goods and services purchased by consumers.
It’s a short week and there isn’t much to do, but we take a look at the new jobless claims measure as well as the inflation numbers. We’ll have it all covered for you next week in the Marketplace Update!
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