THE MONTH IN BRIEF
DOMESTIC ECONOMIC HEALTH
Another important index registered an impressive reading in August: the Institute for Supply Management’s purchasing manager index for U.S. manufacturing. Already at 56.3 in July, it improved to 58.8 last month, indicating strong expansion for the factory sector. At the start of August, ISM’s non-manufacturing sector PMI bore a July reading of 53.9, 3.5 points lower than its June mark; that was still well over the 50-level, delineating growth from contraction. 2,4
August also brought news that the economy had grown 3.0% in the second quarter. That word came from the Bureau of Economic Analysis, which revised its first estimate of Q2 growth up from 2.6%..2.
The Department of Labor’s latest jobs report found payrolls expanding by just 156,000 new positions in August; June and July gains were respectively revised downward to 210,000 and 189,000. Yearly wage growth stayed at 2.5%, a remarkably weak number given the country’s 4.4% unemployment rate. The U-6 rate measuring “total” unemployment remained at 8.6%. (Before the Great Recession, it was as low as 8.0%; that difference may indicate the nation is not yet at full employment.).5.
While the Federal Reserve would like yearly inflation to reach 2.0% as it tightens monetary policy, it is not yet getting its wish. Neither the Consumer Price Index or the Producer Price Index displayed a 2.0% annualized reading in July. The PPI came close at 1.9%; the CPI was at 1.7%. Core consumer inflation was also at 1.7%. Producer prices actually retreated 0.1% in July. 3
Regarding the economic impact of Hurricane Harvey, Moody’s Analytics projects the toll will be between $40-$50 billion, with property damage representing more than 80% of that cost. This staggering amount would still be far less than the $130 billion in financial damage from Hurricane Katrina in 2005. 6
GLOBAL ECONOMIC HEALTH
Reports revealed that the economies of four Asian nations had a superb second quarter. Malaysia’s yearly GDP reached 5.8%; Thailand’s, 3.7%. GDP surpassed 6% in both the Philippines and Vietnam. The major reason for such robust expansion: a surge in exports. Good news came from China as well: in August, its official factory PMI increased 0.3 points to 51.7, topping Bloomberg’s forecast of 51.3. The country’s official service sector PMI declined 1.1 points, but still looked healthy at 53.4.8,9
August did see some losses. India’s Sensex took one of the harder falls, slipping 2.41%. Spain’s IBEX 35 was not far behind, down 1.93%. India’s narrower index, the Nifty 50, retreated 1.58%; Japan’s Nikkei 225 lost 1.70%. The FTSE Eurofirst 300 lost 1.03%, and Germany’s DAX declined 0.52%. Two tiny losses were taken by France’s CAC 40 (0.16%) and the MSCI World index (0.07%).10,11
All in all, it was a rather good month for metals. Gold gained 2.98% to an August 31 COMEX settlement of $1,326.20. Silver rose 3.64% to close at $17.56 on the same day. Copper advanced 6.00%; platinum, 5.95%. As for the greenback, the U.S. Dollar Index retreated 0.37%. Ag commodities had it tough: cotton aside, wheat dropped 13.91%; corn, 11.19%; sugar, 6.71%; coffee, 8.27%; cocoa, 5.85%; soybeans, 5.69%. WTI crude was the loser among energy futures, sinking 8.37% on the NYMEX to a settlement of $47.05 on August 31. Heating oil advanced 0.84%, and natural gas gained 4.73%..1,12.
Between July 27 and August 31, the average interest rate on a conventional mortgage dropped a tenth of a point to 3.82%. That factoid comes from Freddie Mac, which also found average interest rates descending on the 15-year FRM (3.20% to 3.12%) and the 5/1-year ARM (3.18% to 3.14%) across that time frame. 14
Rounding up other key real estate indicators, the NAR’s pending home sales index was down 1.3% for July; the 20-city S&P/Case-Shiller home price index displayed a 5.8% annual advance, rising 0.1% in its June edition. As for construction activity, the Census Bureau reported a 4.8% dip for housing starts and a 4.1% fall for building permits during July.2,3
LOOKING BACK…LOOKING FORWARD
Sources: online.wsj.com, bigcharts.com, treasury.gov – 8/10/17 1,15,16,17
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do
not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
September might pose some difficulties for the markets. By September 30, Congress must pass a budget or face a federal shutdown; additionally, Treasury Secretary Steven Mnuchin has stated that the U.S. will hit its debt ceiling on September 29. Tensions over these matters in Washington could greatly affect Wall Street. North Korea remains a threat. The Federal Reserve may begin shrinking its $4.5 trillion bond portfolio before Q3 ends, and the European Central Bank might soon scale back its easing effort. It could be that the bulls will saunter past all this, but there are certainly enough caution flags to make institutional investors think twice this month. Perhaps a retreat can be avoided as the third quarter concludes. 18
UPCOMING ECONOMIC RELEASES:
What else will investors watch in September? The key news releases include: July factory orders (9/5), the August ISM service sector PMI and a new Federal Reserve Beige Book (9/6), the August Producer Price Index (9/13), the August Consumer Price Index (9/14), August retail sales, industrial output, and the initial University of Michigan September consumer sentiment index (9/15), August housing starts and building permits (9/19), a Federal Reserve rate decision and August existing home sales (9/20), August new home sales and the latest Conference Board consumer confidence index (9/26), August hard goods orders and pending home sales (9/27), the third estimate of Q2 growth from the Bureau of Economic Analysis (9/28), and then, the August personal spending report, the August PCE price index, and the final September consumer sentiment index from the University of Michigan (9/29).
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18 – cnbc.com/2017/08/09/september-market-surprises-that-could-be-spookier-than-north-korea.html [8/9/17]