A Goldilocks U.S. jobs report for July helped stocks end last week on a positive note.
The Dow and the S&P 500 both rose 0.5% on Friday, pushing the Dow modestly into the green for the week while the S&P gained 0.8%. NASDAQ rose 1.0% for the week, winning back most of the prior week’s loss. Small and midcap stocks did likewise. Foreign stocks were mostly negative for the week, especially in China, where the Shanghai composite dropped 4.6%, its biggest weekly decline since the first week of February, and the Hang Seng index in Hong Kong lost 3.9% as the U.S. and China traded tariff threats.
The headline July jobs number came in less than expected but was more than made up for by some other positive figures. Nonfarm payrolls rose by 157,000, well below the Street consensus forecast of 190,000. But the totals for May and June were both revised upward by a combined 59,000, which boosted the monthly average so far this year to 215,000, up from an average 184,000 a month during the same period last year. Wages rose a modest 0.3% for the month and 2.7% versus a year ago, which may dampen concerns about overheating inflation. The unemployment rate fell back down to 3.9% while the labor participation rate ticked upward to 62.9%.
As expected, the Federal Reserve left interest rates unchanged at its July 31-August 1 meeting but indicated pretty strongly that a rate increase is likely to come at its next meeting in late September. “The labor market has continued to strengthen and economic activity has been rising at a strong rate,” the Fed’s post-meeting announcement said, among other superlatives about the economy. As a result, it expects “further gradual increases in the target range for the federal funds rate … over the medium term.” The Fed meeting took place before the jobs report came out, but it seems unlikely that the employment report would be enough to sway the Fed away from that thinking. Treasury bond yields were little changed on the week, although the benchmark 10-year yield spiked above 3.0% on Wednesday before retreating back down to 2.95% by Friday’s close.
Besides the jobs report, there were several other key reports on the U.S. economy released last week. Personal incomes and spending both rose 0.4% in June, in line with expectations, but July auto sales came in weaker than forecast, falling 3.7% from the month before to an annual rate of 16.8 million, the lowest rate since last August. That could pull down July’s retail sales figure. Both of the Institute for Supply Management’s purchasing managers’ indexes fell fairly steeply last month. The manufacturing index dropped more than two points to 58.1 while the nonmanufacturing barometer, which measures most of the economy, fell more than three points to 55.7. The Conference Board’s consumer confidence index rose slightly to 127.4 in July, remaining near its all-time high, while the University of Michigan’s consumer sentiment index ended the month at 97.9, down from the end of June but up from the mid-month reading of 97.1. Pending home sales rose 0.9% in June, their first increase in three months, but remained 2.5% below last year’s levels as home price increases showed few signs of slowing down.
Reports/dates/facts/links worth paying attention to over the next week:
1. August 7: Consumer credit for June.
2. August 9: Weekly unemployment claims; producer price index for July.
3. August 10: Consumer price index for July.
Wright Investors’ Service
This e-mail and any attachments contain information that is intended solely for the use of the named recipient(s). Any dissemination or use of this e-mail or any attachments by anyone other than the intended recipient(s) is strictly prohibited. If you have received this e-mail in error, please notify the sender immediately and destroy the original message and any copies.
Wright does not render legal or tax advice and information contained in this communication should not be regarded as such.