Weekly Market Commentary May 24th to May 28th 2021
New Home Sales came in at 863k, falling well short of expectations and lower by nearly 6% from the prior reading. Rising input costs from lumber and labor are helping to put the brakes on what has been a red-hot housing market. The Case-Shiller Index reported this week that home price growth is the fastest since 2005: 13% annually.
There was positive labor market news this week ahead of next week’s anticipated jobs report. Initial Jobless Claims came in at 406k, down 9% from last week and lower than analysts’ 425k estimate. Last month’s jobs report may have been a hiccup, as tougher restrictions on unemployment benefits and rising wages could be luring people back into the workforce. However, claims are still nearly twice as high as they were before the pandemic.
A report on Durable Goods orders showed that bottlenecks in supply chains are weighing on auto sales. Semiconductors that are now found in every automobile are in short supply. This caused auto sales to drop 6%, even as order backlog grows. Overall orders fell 1.3%, but there were other pockets of growth including private sector aircraft and parts. Inventories are growing slowly, and the retail sales/inventory ratio is at record highs, reflecting strong demand and tight supply.
Two data points late in the week reinforced the emerging narrative around inflation. The monthly growth in the Core PCE inflation came in slightly above expectations at 0.7%. On an annualized basis, inflation is up 3.6%, and 3.1% for core goods vs. a 2.9% projection. The Chicago PMI survey is a closely watched barometer of Midwestern manufacturers. The total index is at a 75.2 reading, the highest since the Nixon Administration. This jaw-dropping figure is driven by depressed inventory levels, soaring order backlogs, and a 47-year high in supplier delivery times. One negative aspect was a stall in employment levels, which makes manufacturing an even more important component of next week’s jobs report.
Equities rose this week, with the S&P 500 up 1.1% to close the week at 4,204. A recovery in tech shares sent the NASDAQ up 2% to 13,749, while the Dow rose 0.9% to 34,529. The yield on the 10-year U.S. Treasury fell 5 basis points to 1.58%.
Besides the monthly jobs report, next week’s economic releases include construction spending, the ISM Manufacturing gauge, and Factory Orders.