Week in Review September 1, 2017
Despite Hurricane Harvey and renewed tensions with North Korea, U.S. stocks were broadly higher last week, propelled by a string of solid economic reports.
NASDAQ led the way with a 2.7% gain, its best weekly increase this year, while the S&P 500 rose 1.4% and the Dow gained 0.9%. Those increases pushed the three indexes into the green for August, with NASDAQ up 1.3% for the month while the Dow and S&P were up 0.3% and 0.1%, respectively. Government bonds were mostly unchanged last week but prices were up sharply in August, with yields falling by nearly 20 basis points at the long end of the curve. The benchmark 10-year Treasury note closed Friday at 2.16% but fell below 2.10% earlier in the week, its lowest level of the year. Oil prices were mostly unchanged but gasoline prices jumped 20 cents a gallon as a good part of American refining capacity was shut down by the flooding in Houston. Gold prices gained 2.5%. Outside the U.S., Japan’s Nikkei 225 index rose 1.2% last week, its first weekly gain in seven weeks. European stocks were narrowly mixed; on Tuesday, the euro jumped over $1.20, its highest level against the dollar since late 2014 before ending the week at $1.18.
While the August jobs number disappointed, most of the other economic indicators released last week came in better than expected. On Friday the Labor Department said nonfarm payrolls rose by 156,000 last month, below the 180,000 Street forecast, while the prior two months’ totals were revised downward by 41,000. On the bright side, manufacturing jobs rose by 36,000, the most in five years. Elsewhere, second quarter GDP was revised upward to show the economy growing by an even 3%, up from the original estimate of 2.6%, making it the strongest quarterly growth rate since the first quarter of 2015. The Institute for Supply Management’s manufacturing index for August jumped 2.5 points to 58.8, its highest level since April 2011.
Consumer spending rose 0.3% in July while personal incomes increased by 0.4%. The personal consumption expenditures index, the Federal Reserve’s main inflation gauge, rose only 0.1% for the month and 1.4% compared to a year earlier, well below its 2% target, which makes it less likely the Fed will raise rates at its September meeting. Perhaps not surprisingly, two consumer attitude surveys were up sharply in August. The Conference Board’s consumer confidence index jumped nearly three points to 122.9, its second highest level since December 2000, behind only last March’s reading of 124.9, while the University of Michigan’s consumer sentiment barometer rose to 96.8, up 3.4 points from the end of July although down about a point from mid-August.
The only negative of the week was the pending home sales index for July, which fell for the fourth time in the past five months. The index fell 0.8% to 109.1. The resale market continues to be hurt by a limited supply of homes available for sale. “This unsustainable trend is putting considerable pressure on affordability in some markets – especially for prospective first-time buyers – and is pricing out some households who would otherwise be looking to buy a home,” said Lawrence Yun, the National Association of Realtors’ chief economist. Construction spending fell 0.6% in July despite a 0.8% increase in residential building.
Reports/dates/facts/links worth paying attention to over the next week:
1. September 4: U.S. financial markets closed for Labor Day.
2. September 5: Factory orders for July.
3. September 6: Institute for Supply Management non-manufacturing composite index for August; Federal Reserve Beige Book.
4. September 7: Weekly unemployment claims.
5. September 8: Consumer credit for July.