The U.S. Created 164,000 Jobs in July… The number was just above the expectation of 150,000, but the Bureau of Labor Statistics (BLS) cut the jobs numbers in May and June by 41,000.
What it means – Wages rose a touch more than expected, up 0.3% for the month and 3.2% for the year, head of the 0.2% and 3.1% expectations. But the average work week dipped by 0.1, so the numbers sort of even out.
The report was a bit of a yawner, but it did give investors a bit of hope that the Fed will cut rates at least one more time this year. The 164,000 jobs didn’t show exceptional strength, and the revisions to the May and June numbers showed a bit of unexpected weakness… not much, but maybe just enough to give us one more cut.
Interestingly, the birth/death adjustment, which the BLS uses to guesstimate at changes not in the survey numbers, shows an additional 148,000 jobs on a non-seasonally adjusted basis. That’s almost all the jobs in the headline number.
The Federal Reserve Lowered Rates by 0.25%, As Expected, Then Surprised Markets with Comments… The Fed lowered the Fed Funds rate to a range of 2.00% to 2.25%, but then Chair Jay Powell said that it wasn’t necessarily part of a series of cuts, and that he couldn’t say for sure.
What it means – Well, that didn’t feel good. The Fed lowered rates as predicted, but then threw investors a curve ball by implying that it might not cut further in September or December. The news hit like a ton of bricks, driving the Dow Jones down 400 points before it recovered and then rebounded the next day.
But Chair Powell’s comments get at something that bothers everyone: Why cut at all? If the economy is solid, as he suggested, then what’s the point? His reasoning, that we have weaker than expected inflation, trade troubles, and questionable growth around the world, doesn’t rise to the occasion of driving monetary policy in the U.S., which is probably why he hinted this could be once and done.
It’s possible that the central bankers are more worried about interest rates and growth around the world than we’re giving them credit for. Currently, more than $13 trillion worth of bonds are priced at negative interest rates, which makes 10-year U.S. Treasury bonds at 2% look like a high yield offering. The relatively high rates in the U.S. attract investment dollars, which pumps up the value of the U.S. dollar.
The Fed could be fighting a good-old fashioned currency war, hoping to take a little bit of the shine of the greenback.
No matter what the reason, they just made mortgages more attractive, which is good because the housing market can use all the help it can get.
President Trump Will Impose 10% Tariff on Remaining $300 Billion of Chinese Goods on September 1… The president said the trade talks will continue, but he will slap the last $300 billion of Chinese goods with a tariff.
What it means – Investors couldn’t get a break on Wednesday or Thursday. First the Fed throws them a curveball, and then Trump hits them with a pitch. The tariff news isn’t a complete surprise, but it still isn’t welcome. Without an idea of when the trade wars might end, investors are left wondering how much growth will be lost as we slug this one out. Stocks took a dive on the news, swinging from healthy gains to healthy losses.
S&P CoreLogic Case-Shiller 20-City Home Price Index in May Up 2.5% Over Last Year… The index rose 0.1% for the month.
What it means – The slow grind toward zero growth in prices continues as the annual gain dipped from 2.5% in April to 2.4% in May, down from 6% last year, even though the monthly number showed a slight bump.
The conundrum in housing, slow sales and yet continued high prices, remains in place, but as price appreciation approaches the zero line, it’s possible that incomes will get a chance to catch up a bit, making homes more affordable to first-time buyers.
Eurozone Second-Quarter GDP Growth Falls to 0.8%… GDP growth in the economic bloc fell to half of the 1.6% rate in the first quarter.
What it means – The report was right in line with the flash report earlier, but that doesn’t make it any less painful. With GDP growth back below 1% and inflation moving lower as well, the European central bankers are gearing up their money printing machine and considering pushing rates further below zero, as discussed last week. The reasons remain the same: weaker trade, questions over Brexit, Italian budget busting, etc.
What’s interesting is that a decade of easy monetary policy and bailouts hasn’t “fixed” anything. But that doesn’t mean the ECB won’t keep trying. With only a couple of levers to pull, expect lower rates and more bond buying at their next meeting in September, which will push interest rates in the bloc lower and drive down the euro.
This is the currency war that the Fed is fighting.
OPEC Produces Lowest Amount of Oil Since 2011… Even though oil demand has risen more than 10% over the last eight years, OPEC is producing just 29.42 million barrels per day, a level it hasn’t seen since 2011.
What it means – U.S. frackers should be writing thank you notes with both hands. They need to send one set to the members of OPEC plus the group led by Russia that works in concert with OPEC. This group, OPEC-plus, has held members to supply quotas as they attempt to push prices higher. Saudi production sits at 9.65 million barrels per day (bpd), well off of their peak production as they try to keep prices up.
The other set of thank you notes should go to President Trump and his advisors, because the administration has put Iran in a stranglehold, dropping their oil production from 2.5 million bpd in April of 2018 to as little as 100,000 bpd this summer. The administration has also imposed sanctions on Venezuela, but no one outside of the country can inflict as much damage on Venezuela as they have to themselves. Through mismanagement, neglect, and corruption they’ve ruined their production capacity, even though they have the most proven oil reserves in the world.
All of this benefits the U.S. frackers, who have moved in to fill the gaps. We now produce more than 12 million bpd, the most in U.S. history, as we take market share from OPEC and others.
US Foods Survey Finds One in Four Delivery People Have Eaten Client Food… Sometimes when you grab takeout, the food smells so good that you grab a bite before you get home. Apparently, the same thing happens to food delivery people. In a US Foods survey, 54% of food delivery people admitted they were tempted by their clients’ food. Among those, half said they had taken a bite or otherwise consumed some of their clients’ meals.
Some delivery services are now requesting that restaurants use tamper-proof packaging for their takeout items, but it’s not clear how many are moving that direction.
Data supplied by Dent Research/Delray Beach Publishing
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