Below are the economic and market highlights for the week:
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With trade wars largely in the rearview mirror, business was booming in August. The Flash Services PMI hit 55.4 this month, only down slightly from July’s 55.7. Numbers above 50 indicate expansion while those below signal contraction. Meanwhile, the manufacturing sector jumped in August to a nearly three-year high. The Flash Manufacturing PMI rose to 53.3, up from July’s 49.8. Companies across both manufacturing and services reported strong demand. However, they struggled to meet sales growth, causing backlogs to rise at a pace not seen since the pandemic-related capacity constraints recorded in early 2022. Needless to say, this caused a surge in hiring as job creation reached one of the highest rates seen over the past three years. With strong demand, businesses were also increasingly more confident they will be able to pass along higher costs to consumers. That has resulted in the steepest rise in average selling prices recorded over the past three years.
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Strong pent-up demand and more options for homebuyers drove existing home sales up 2.0% in July to a seasonally adjusted annual rate of 4.01 million. Inventory was also higher by 15.70% from a year ago, bringing the number of homes available for sale to 1.55 million. That’s equal to a 4.6 months’ supply and inching closer to the six to seven months considered a healthy balance between supply and demand. Despite higher inventory, prices continued to tick higher as well, increasing 0.20% month-to-month to $422,400. Home prices, however, could be at an inflection point as higher inventory could push prices lower and increase home buyer affordability.
Among the Pines, Bankers Find Their Inner Dove
Central bankers and economic policymakers converged on Jackson Hole this week to bask in the splendor of the area’s flora and cooler weather while investors sought clues on the Fed’s next move on rates. The week’s early sessions showed a marked shift in sentiment from the prior week as investors trimmed exposure to mega-cap growth and took refuge in defensive industries like healthcare and staples. Overall, it was a very light news and data week which meant the primary focus would be on the Fed’s annual Jackson Hole symposium, where Fed Chair Jerome Powell would take center stage Friday.
Markets generally traded down through Wednesday but that momentum built on Thursday when the Fed’s July meeting minutes were released. While the minutes showed policymakers are increasingly worried about both jobs and higher prices, many members continued to believe it is too soon to lower interest rates. That realization weighed on markets until Friday morning when Powell delivered a speech tailored for bulls. Powell noted that the “balance of risks appears to be shifting” between the Fed’s dual mandate of employment and stables prices. Powell acknowledged that prices may continue to rise in the coming months as tariffs begin to more fully work their way through the supply chain, but the drift higher might be better characterized as an elongated, one-time price hike, rather than a recursive condition that would be of greater concern to the bank. Furthermore, to the degree tariffs may impact near-term pricing, those concerns are likely to be offset by the developing weakness in the labor market which is being negatively impacted by both demand and supply factors. Although he didn’t specifically signal a September rate cut, he did note conditions “may warrant” interest rate cuts as the Fed proceeds “carefully.”
While markets were quick to seize on Powell’s more accommodative tilt, he made a number of important comments that markets seemed to ignore. While the Fed may indeed be shifting towards another cut, there was no indication that they intend to do so aggressively. A cut or two hardly matches the bullishness of recent weeks. Second, and more importantly from a longer-term market valuation standpoint, Powell suggested that the so-called “neutral” rate for the economy is likely to be higher than it was over the past decade. Interpretation? We’re not going back to free money which is something that markets and Washington are ultimately girding for. For investors who had spent the week worrying whether they would see another cut during Powell’s term, his comments were good enough to propel the Dow Jones Industrial Average 800+ points higher and to a new all-time high. Consumer discretionary, energy, and materials stocks lead the day’s gain, up 3.04%, 2.04%, and 1.98%, respectively. After the speech, markets wagered on an 84% chance of a cut in September.
The degree of Powell’s shift is notable. It clearly reflects a concern over the labor market that has yet to be validated. The only major indicator supporting that is really July’s job report but that is about it. Other employment indicators – for example the hiring strength in the PMI – have been far less determinative. Another plausible explanation for the shift could simply be that the Fed feels like a 25 bps cut is a giveaway to the market and Washington that won’t materially impact inflation while sidestepping being scapegoated if unemployment continues to sour. The Fed is in an unenviable position for certain, but one has to wonder with the PMI showing what it is showing (strong activity, rising prices, hiring strength), retail sales holding, Q2’s earnings being strong – and the sole negative indicator being July’s jobs report – whether all the bankers walking around Jackson Hole are ultimately failing to see the forest for the trees.
The Week Ahead
The Labor Day weekend is upon us, marking the unofficial end to summer. Week in Review will pause in observance. Our next edition arrives on September 5th with the latest nonfarm payrolls, manufacturing, and services numbers.
The Pen is Mightier than the Keyboard
As schools across the country return to full swing, a recent study shows that writing by hand can significantly enhance learning—and the benefits apply to both children and adults.
In kids, studies show that tracing out ABCs, as opposed to typing them, leads to better and longer-lasting recognition and understanding of letters. Writing by hand also improves memory and recall of words, laying down the foundations of literacy and learning. In college students and adults, research indicates that taking notes by hand instead of typing on a keyboard can lead to better conceptual understanding of material, stimulating different and more brain connections that are essential in encoding new information, forming memories, and helping fight cognitive decline.
Intuitively, many writers over the years have understood that a more tactile approach to their craft leads to greater productivity and enhances creativity. Russian-born American novelist Vladimir Nabokov wrote his famous novels on index cards, some of which are now stored at the Library of Congress and the New York Public Library. Additionally, J.K. Rowling mapped out stories by hand. Jack Kerouac, Stephen King, James Patterson, George R.R. Martin, and Tom Wolf have also used longhand to create some of their best-selling novels.
Scientists have only recently begun to investigate the connections between writing by hand and improved learning using neuroimaging to support their findings. Using high density electroencephalography – EEGs – researchers tracked brain activity of research participants during handwriting and typing, enabling them to see in real-time how different areas of the brain are activated and work together during each activity. Scientists observed and collected data on brain oscillations (patterns of neural activity) that reflected specific cognitive functions. When writing by hand, the brain shows far more widespread engagement and synchronization. This is likely because handwriting involves complex, fine motor movements and requires more attention, focus, and effort compared to the repetitive keystrokes of typing. This suggests that the precisely controlled hand movements that occur when writing lead to spatial and temporal patterns in the brain that promote learning and retention.
An earlier study conducted in 2022 by a doctoral student at the University of Louisville evaluated whether taking notes by hand versus typing affected how students performed on tests. The review found that students who took handwritten notes scored significantly higher on quizzes about that material compared to students who typed notes. Furthermore, a study conducted in Japan found that participants who recorded calendar event information on paper calendars demonstrated more brain activity than subjects who recorded the same information onto a smartphone when they tried to remember details about the information later. In addition, the participants who wrote in their calendars recalled the information 25% faster than those who typed it into a phone.
We don’t have to ditch digital tools and devices entirely. So far, the research suggests that writing with a stylus on a screen activates the same brain pathways as putting ink on paper, but it’s worth considering whether we might be better off writing grocery lists, important reminders, and other notes with pen and paper.