The financial markets seemed to view last Friday’s so-so July jobs report as good enough to convince the Federal Reserve to start interest rate liftoff later this year, possibly as early as next month.
The Labor Department said nonfarm payrolls rose by 215,000 in July, in line with expectations, down from an upwardly revised June total of 231,000. The unemployment rate held steady at 5.3%. The labor force participation rate also was unchanged at 62.6% in July, matching the lowest reading since 1977. The report sent stock prices down modestly on Friday, but prices were already down most of the week prior to that, with all three major indexes falling by well more than 1% for the week. Stocks have now fallen five of the past seven weeks. Energy stocks were once again the worst performers, falling 3.5% last week as crude oil dropped another 7%, ending the week at below $44 a barrel; energy stocks are down 15% so far this year.
Despite a growing consensus around a September rate increase, comments from two senior officials last week showed that there is still some difference of opinion on the Fed about raising rates and when. Atlanta Fed President Dennis Lockhart jolted the markets on Tuesday when he told the Wall Street Journal that the economy can handle higher short-term rates and that it would take a significant decline in economic data to convince him not to move in September. “I think there is a high bar right now to not acting, speaking for myself,” he said. But the following day Fed governor Jerome Powell told CNBC that a September liftoff is not a done deal, at least as far as he is concerned. “Nothing has been decided, and I haven’t made any decisions about what I would support, and certainly the [Federal Open Market Committee] hasn’t,” he said.
China shares rebounded last week following the previous week’s 10% drop and July’s 14% plunge. On Friday the Shanghai Composite Index rose 2.3%, pushing it into the green by about that much for the entire week. Elsewhere the other major Asian indexes were mixed, with Japan and India up slightly and Hong Kong off modestly. European stock prices were modestly higher on the week. The Stoxx Europe 600 gained 0.2% on the week. Greece’s stock market reopened after being closed for more than a month, dropping 16% last Monday, its first day of trading since June 26. The market was relatively calm after that, rebounding on Thursday and Friday to end the week with a 15% loss.
In addition to Friday’s jobs report, there were several other important U.S. economic reports released last week. The Institute for Supply Management’s two indexes for July were widely mixed. The manufacturing gauge dropped to a weaker than expected 52.7 from June’s 53.5, which had been the best measurement so far this year. The Street was expecting a reading of about a point higher. The employment index fell nearly three points to 52.7 from 55.5. More importantly, however, the ISM’s non-manufacturing index, which accounts for a much larger piece of the economy, jumped more than four points to 60.3, its best reading in nearly 10 years and more than four points higher than expectations. Factory orders for June rose 1.8%, in line with estimates, while construction spending for June rose a modest 0.1%, well below forecasts and down sharply from May’s upwardly revised 1.8% rise. Consumer spending for June rose 0.2%, half as much as the gain in personal incomes.
Reports/dates/facts/links worth paying attention to over the next week:
- August 12: U.S. Treasury budget report for July.
- August 13: Weekly unemployment claims; retail sales for July.
- August 14: Industrial production for July; producer price index for July; University of Michigan consumer sentiment index for August.
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