September 1, 2017

Stocks opened higher despite weak economic data (Dow +52 pts; SPX +.2%). Banks, semiconductors and transports are leading the way. Utilities and healthcare sectors are modestly lower. WTI crude oil is trading flat around $47.17/barrel. Storm flooding around Houston has shut down some oil refineries, and since there are very few of them around the country, gasoline prices are spiking. The national average price is up to $2.51/gallon from $2.33 before the storm. Bonds are down in price, up in yield today. The 5-year Treasury yield ticked up to 1.74% and the 10-year yield is trading at 2.16%. 

August’s Employment Situation Report from the Bureau of Labor Statistics was a bit disappointing. The economy generated 156,000 new jobs during the month vs. economists’ consensus forecast of 180,000. The unemployment rate edged up to 4.4% and average hourly earnings (i.e. wage growth) held steady at 2.5% y/y growth. The average workweek fell to 34.4 hours. The total labor force participation rate remained at 62.9%. Bloomberg notes that “On the face of it, Friday’s US payroll numbers were uniformly awful, with disappointing prints on the headline job gains, unemployment rate, and average earnings. However, on closer inspection there are a number of mitigating circumstances.” These include a calendar quirk and some seasonal factors that robbed from August payrolls but will benefit September. 

ISM’s Manufacturing Index surged to 58.8 last month from 56.3 in the prior month. Remember, this is probably the most closely-watched survey of business activity for the factory sector. Any reading above 50.0 indicates expansion. The report’s major components read like this: inflation held steady with the prior month; new orders for goods held steady at a very high level; hiring activity picked up a lot. I’d point out that the index hasn’t been this high in six years.

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