U.S. Economy Adds 201,000 Jobs in August as the Unemployment Rate Moves to 3.9%… The economy created more jobs than expected in August, but the totals for June and July saw a downward revision of 50,000.
What it means – The headline numbers were good, but the real meat of the report was in the details. Average hourly earnings jumped 0.4% for the month and were up 2.9% over last year, the fastest pace since 2009. The wage gains centered in durable goods manufacturing as well as professional and business services.
It will be very interesting to see the Fed’s reaction to this report, which should show up in the central bank’s comments following its meeting later this month. As we’ve discussed for some time, when wages walk higher they signal inflation, which will motivate the Fed to raise rates.
Institute of Supply Management (ISM) Manufacturing Index Reaches 61.3… The reading far surpassed the high estimate of 58.1. Anything over 50 implies expansion.
What it means – That number is high enough to make your eyes water. It reflects strong growth in new orders, with both exports and backlogs expanding. As you might expect, delivery costs remain quite high, at 72.1, even though that’s a drop from the 79.5 registered in July. A lot of the strength reflects economic expansion based on tax reform.
Businesses simply have more money to spend on growing operations. But some of the bigger orders can be attributed to importers and exporters trying to get ahead of the next round of trade tariffs. Expect manufacturing activity to cool in the weeks and months ahead. Maybe not go backwards, but definitely drop off from these nosebleed levels.
Even if business activity eases a bit, this report will give the Fed more confidence to raise rates in a couple of weeks as well as pencil in another hike in December.
Real Wages Up 0.2% in Second Quarter, Up 0.5% over Last Year… Output jumped 5% in the second quarter even as hours worked eased to 2.0% from 2.3% in the first quarter.
What it means – Businesses are spending, but not on people. At least, not on wages. So far, corporate America has been able to expand production without expanding paychecks.
Some researchers attribute that to adding more young – and therefore lower-paid–workers to the mix, which will skew the average pay. There might be some truth to that as the Millennial generation continues to enter the job market. But with unemployment firmly under 4%, wage inflation is probably just around the corner.
Factory Orders Down 0.8%, Core Capital Goods Up 1.6%… The headline number includes aircraft, while the core number excludes aircraft and defense spending, and is a proxy for business spending.
What it means – Factory orders confirm the decent numbers in the durable goods orders report from last week. Core capital goods orders came in hot and follow the strong 0.8% and 0.7% reports from June and July.
The basic story remains the same – business is good.
Twitter’s Jack Dorsey and Facebook’s Sheryl Sandberg Testified Before Congress About Suppressing Information… Concerned that leading social media companies are curbing free speech, congressmen grilled executives about how they decide which views to censor and which ones to allow.
What it means – Both executives were low-key in their responses, seemingly taking responsibility for some missteps and acknowledging the difficulty in determining allowable content. Noticeably missing was anyone from Alphabet, parent of Google, which handles 90% of searches. Alphabet CEO Larry Page took a pass on the hearings.
Investors aren’t sure what to make of the dust-up. Because the social media and search giants are private companies, they can restrict any speech they want. Free speech is only guaranteed when dealing with the government or a government-supported entity. But if this issue gains traction, it could lead to legislation, which typically bodes poorly for profits.
But more than congressional hearings weighed on tech shares this week, when even companies such as eBay tumbled. Perhaps investors are protecting some of their gains as we make our way through what is typically the worst month of the year for stocks.
Goldman Scuttles Crypto Trading Desk, Bitcoin Falls Below $6,500… The storied investment banking firm gave cryptocurrencies a shot in the arm earlier this year when it announced plans to open a trading desk assigned to digital dollars.
Conversely, Goldman sent the industry lower this week when CNN announced that it won’t follow through. It appears that since crypto prices dropped by 60% or more, the bloom is off the rose and trading activity has dried up considerably.
Goldman’s CFO, Martin Chavez, said the report is “fake news.” Apparently, the firm is still working a derivative for investors seeking market-based access to bitcoin.
We’ve long noted the shortcomings of offerings such as bitcoin, such as the fact that few people used them as actual currency. Instead, people treated them like investments which is consistent with IRS treatment. Still, having a few entries in your computer that are worth $6,500 apiece is pretty good. Unless, of course, you bought them last December at $19,000.
Data supplied by Dent Research/Delray Beach Publishing
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