Weekly Market Commentary June 25th to July 2nd 2021
The Dallas Federal Reserve Bank kicked off a busy week of critical economic data on Monday registering a reading of 31.1 with readings above 0 being expansionary. This was a slight decline from the prior months reading of 34.9 but signals strong growth in the coming months. Respondents to the survey noted that supply-chain disruptions, soaring costs and hiring difficulties continue to be a headwind but that demand is incredibly positive for all types of manufactured goods.
Strength in housing continued in May with pending home sales increasing by 8% from April and the fastest rate of monthly growth since May 2005. Year-over-year sales have increased 13.1%. This is despite record-high prices and an all-time inventory low that have been offset by record low interest rates and record-high aggregate wealth that is driving demand. Home price growth is expected to moderate in the second half of the year as new inventory is expected to come to market.
US companies added 692,000 jobs in June according to the ADP Employment report. This was above the median estimate but mostly offset by a downward revision to May’s number. Leisure and hospitality led the way accounting for about half of the total hires.
Initial jobless claims reached a pandemic-era low of 364,000, a decline of 51,000 from the prior week. Continuing claims increased by 56,000 from the previous week to 3.48 million, but despite the weekly increase the four-week moving average declined to its lowest level since March of 2020.
National manufacturing data dominated Thursday with both the Institute for Supply Management and IHS Markit releasing their monthly indexes. The ISM increased for the 13th month in a row registering a 60.6, a slight decline from the prior month but remains at historically elevated levels. The June IHS Markit reading came in at 62.1, unchanged from May while strength is likely to continue with marked upturns in demand noted by respondents.
Wrapping up the week was the highly anticipated Bureau of Labor Statistics employment reports. Non-farm payrolls increased at the fastest rate in 10 months at 850k, ahead of both expectations (720k) and the prior month that was revised upward (583k). Despite the increase in jobs the unemployment rate increased to 5.9% from 5.8% as more people re-entered the workforce or voluntarily left a prior job. The labor participation rate was unchanged at 61.6% and remains well-below pre-pandemic levels of around 63%. Lastly, average hourly earnings increased 3.6% on a year-over-year basis and 0.3% on a month-over-month basis and evidence of employers having to increase wages to attract workers. Overall, the report had many positive signs, but there is a long way to go with payrolls still 6.8 million below pre-pandemic levels.
Equities had another strong week, with the S&P 500 up 1.6% to 4,352, the Dow Jones increased by 1.1% to 34,787, and the Nasdaq increased by 1.5% to 14,639.
The 10-Year U.S. Treasury opened the week at 1.53%, but steadily declined to end the week at 1.44% and is mostly attributable to investors decreased concerns of inflationary pressures and near-term monetary policy tapering by the Federal Reserve.
Next week’s noteworthy economic data releases include U.S. service sector PMI, mortgage applications, consumer confidence readings, and consumer credit.