In his podcast addressing the markets today, Louis Navellier offered the following commentary.
Treasury bond yields declined after the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday declined 3.7% to 8.827 million jobs in July, compared to a revised 9.165 million in June. The JOLTS report was also well below economists’ consensus estimate of 9.465 million.
ADP reported on Wednesday that 177,000 private payroll jobs were created in August, which was substantially below a revised 371,000 in July. This was the slowest monthly job growth since March 2022 according to ADP. The good news is the manufacturing sector gained 12,000 jobs after two big months of job losses. Due to decelerating payroll growth, the Fed is expected to proceed cautiously.
In addition to announcing the August payroll report on Friday, the Labor Department is also expected to dramatically reduce overall U.S. payroll growth in the past 12 months. This big payroll revision is anticipated to finally fix the bogus seasonal adjustments (like in January) as well as overstated manufacturing jobs (like in June and July) relative to ADP. This is why I do not trust the monthly payroll reports from the Labor Department since there are simply too many seasonal “fudge” factors.
The statement in Fed Chairman Jerome Powell’s Jackson Hole speech that is getting the most attention is “Navigating by the Stars Under Cloudy Skies.” What Chairman Powell is referring to is that the economic data is fussy, which I agree with. This week we hope to get some clarity on payroll growth, since ADP and the Labor Department have been far apart in the past couple of months, especially on manufacturing jobs.
As an example of how consumer spending has changed, Best Buy announced on Tuesday that its same-store sales declined 6.3% in its latest quarter due largely to falling demand for Appliances and big-ticket items. The only growth area for Best Buy was gaming. Although Best Buy’s (NYSE:BBY) operating earnings were better than expected, any company facing declining sales growth is in a scary situation. Chief Executive Corie Barry said, “We continue to expect that this year will be the low point in tech demand after two years of sales declines.”
The Rising Cost Of Living
We will also get clarification this week from the Institute of Supply Management (ISM) on manufacturing which has contracted for several months. The manufacturing recession and related job losses according to ADP are running counter to the “Bidenomics” message emanating from the White House. So far, the Biden Administration’s onshoring efforts have failed to create new jobs, since manufacturing employment has been falling. Furthermore, the Biden Administration has been losing support among working-class voters and Hispanics, who continue to worry about economic issues, like the higher cost of living.
Speaking about the cost of living, I should add that gasoline prices are now at their highest level this year, which is annoying inflation-wary Americans. The fact that inventories remain low for crude oil and refined products is facilitating the high prices at the pump. Typically, peak summer demand ebbs after Labor Day, so it will be interesting if there is any meaningful relief in the upcoming weeks. However, when the refineries shift from summer fuels to “oxygenated” winter fuels, gasoline inventories typically decline and gasoline prices all too often surge higher, so any price relief may be temporary.
The other factor that is raising the cost of living is higher home prices. S&P Global Case-Shiller announced on Tuesday that median home prices in 20 major metro areas rose 0.9% in June compared to May, but declined 1.2% in the past 12 months. Home prices rose in all 20 metro areas in June. Chicago, Cleveland, and New York metro areas led the price appreciation, while home prices declined in Seattle and San Francisco metro areas in the past 12 months. It will be interesting if declining median home prices in the past 12 months will impact Owners’ Equivalent Rent which will be updated in the Personal Consumption Expenditure (PCE) index this week.
As evidence that consumers are restless, the Conference Board reported that its consumer confidence index plunged to 106.1 in August, down from a revised 114 in July. The present situation component plunged to 114.7 in August, down from 153 in July. The previous gains in consumer confidence in June and July were erased in August. Higher credit card debt and fears over higher interest rates, plus high gasoline prices are clearly spooking consumers. This is truly a shock and bodes poorly for continued strong consumer spending.
Interestingly, the Atlanta Fed is forecasting 5.9% annual third-quarter GDP growth, thanks to improving consumer spending as well as a shrinking trade deficit due to rising energy exports. However, in light of the big drop in consumer confidence by the Conference Board, I am now expecting a big downward revision in estimated third-quarter GDP growth. I should add that the Commerce Department on Wednesday lowered its second-quarter GDP estimate to a 2.1% annual pace, down from a 2.4% annual pace previously estimated.
The U.S. Court of Appeals in Washington D.C. unanimously ruled to allow Grayscale to open a cryptocurrency ETF in a stunning defeat for the SEC. An SEC spokeswoman said the agency is “reviewing the court’s decision to determine next steps.”
The SEC could (1) appeal the appellate court decision to the Supreme Court, (2) grant Grayscale’s application, (3) deny it again based on some other justification, or (4) rescind its prior approval of bitcoin-futures ETFs. Frankly, this is a stunning defeat for the SEC, whose authority has been systematically neutered by the Supreme Court in previous decisions. I now expect the SEC to grant approval for Grayscale’s cryptocurrency ETF, unless the agency wants to be further humiliated by federal courts.
Coffee Beans: Marriage of Convenience
A county in China is offering newlywed couples a “reward” of 1,000 yuan ($137) if the bride is aged 25 and under to promote “age-appropriate marriage and childbearing” for first marriages. China’s fertility rate dropped to a record low of 1.09 in 2022. Source: Sky News. See the full story here.