September 10th, 2021
Stocks struggled to find their feet in a post-Labor Day holiday shortened trading week. Investors kicked off the week digesting last Friday’s disappointing jobs report. The economy added 235K jobs in August, well short of economist estimates of 728K jobs. The shortfall was driven in large part by a drop in hiring in sectors requiring in-person interaction amid a rise in Covid delta variant cases. Although the jobs report showed businesses were a bit more hesitant to add to their payrolls last month, they seemed inclined to retain their current workforce as jobless claims fell to 310K last week – a pandemic low. ISM manufacturing and services reports also seemed to counter the weak jobs report as both signaled strong economic expansion. With investors turning cautious amid the Covid headlines and a busy September for the market, the S&P 500 fell -1.70% for the week.
Businesses Tap the Brakes on New Hires
With traders calling it an early week last week ahead of the long Labor Day holiday, markets kicked off this week pouring over August’s nonfarm payrolls report. Businesses added 235K to the payrolls, down sharply from the 1.1 million hired in July and 962K in June. The unemployment rate fell to 5.2% from 5.4% in July. August’s jobs miss was driven largely by consumers beginning to pull back on in-person activities, leading to lower demand for jobs with high customer interaction. The leisure and hospitality industry added zero jobs during the month. Prior to August, the industry had previously recorded strong payroll gains, adding 350K jobs per month over the previous six months. Retailers also cut jobs during the month, reducing headcount by -28.5K. There were some bright spots in the report. Professional and business services made 74K new hires. Hiring in the ecommerce segment remained strong with transportation and warehousing adding 53.2K new hires. The manufacturing sector, which has been strong throughout much of the pandemic, also posted payroll gains by adding 37K workers. The weaker than expected jobs report had investors questioning the strength of the labor market amid a resurgence in Covid. The recent jobless claims report suggests employers may just be hesitant to boost their payrolls but remain confident enough in their outlook to retain their current workforce. Jobless claims fell to 310K, which was a pandemic low, and lower than the 345K claims the week prior. With jobless claims falling in six of the past seven weeks, the labor market should be able to power through the current Covid wave.
Inventory Re-Stocking Lifts Manufacturing
U.S. manufacturing activity had another solid showing in August despite persistent raw materials shortages, Covid-induced supply chain disruptions, and port congestions in China. The Institute for Supply Management (ISM) Manufacturing Index rose to 59.9 in August, up from 59.5 in July. Levels above 50 indicate expansion in the manufacturing sector, while figures below indicate contraction. The uptick was driven by strong order growth with all of the six largest manufacturing industries reporting growth. Meanwhile, the ISM Survey’s forward-looking new orders sub-index rebounded to a reading of 66.7 in August. That followed two straight monthly declines. Fourteen out of 18 industries reported growth in new orders. Demand has largely been driven by businesses seeking to replenish stocks after inventories were drawn down sharply in the first half of the year. The Covid reemergence should reduce demand temporarily which should help supply chains catch up as we head into the busy holiday shopping season.
End of Summer Spending Lifts Services
Amidst the late summer surge in Covid cases, consumers continued to spend on service-oriented activities. The ISM Services Index hit 61.7 in August, down from July’s record high of 64.1. The figure is well above 60 which signals exceptional growth. A drop in the business activity index to 60.1 from 67.0 the previous month drove the decline. Labor shortages, logistic delays, and a lack of materials have all worked to prevent businesses from operating at their maximum potential to meet customer demand. As we emerge from this current Covid wave, demand for face-to-face activities should pick up once again.
So far, September has been lethargic as investors weigh the risks to their year-end outlook. To state the obvious, the path forward is going to be dictated by the degree the economy stays open and how much consumers will spend. The recent resurgence in case counts has been notably bad for spending and hiring, but bulls have ironically found some relief from the fact, believing this will temper inflation and further reduce the inclination of the Fed to tighten any time soon. In some respect, we are back to bad news is good for markets – just as long as the news doesn’t get too bad. Most models anticipate that we have either already peaked or will shortly peak on the current wave of Covid cases, setting investors’ expectations that the holiday season will still be a strong one – all this caveated by the all too familiar phrase at this point disclaiming “Covid dependent”.
The Week Ahead
Consumer spending comes in focus amid a surge in Covid delta cases. Traders will pour over the latest retail sales and inflation reports.
Over the years, we’ve had the opportunity to watch our Probity family reach a number of milestones, whether through hiring new associates, through our staff members celebrating work anniversaries, through employees growing their own families, and so many other life moments. This week, we are so glad to celebrate three very important events. First, we want to wish a very happy 90th birthday to our friend Shirley Donnell. Shirley has been providing financial advice and guidance to families, business owners, and retirees for more than 50 years. Shirley and Buddy Ozanne, Probity’s founder, became friends in the 1970s, and their friendship grew into a business relationship that leveraged Probity’s investment expertise to provide customized planning and wealth management to Shirley’s clients. Shirley is part of our extended Probity family, and at the age of 90, he continues to go to work every day doing what he loves and helping his clients achieve their financial goals. Happy 90th Birthday, Shirley!
We would also like to send our most joyful congratulations to one of our associates, Holman Moores, and his wife Morgan, who welcomed their first baby earlier this week. Holman has been part of the Probity family since 2014 and helps clients with financial planning and other wealth management needs. Holman and Morgan’s baby boy arrived on Tuesday, September 7th, 2021. All of us are thrilled for the Moores family and cannot wait to meet the newest member of the Probity family.
Lastly, we’re happy to be recognizing the 10-year work anniversary of Cinco Sorrow who joined Probity in 2011. Cinco provides marketing and sales support to our organization and to our advisors. She assists with a number of office and practice management responsibilities, including event planning, overseeing our hiring process and our internship programs, and managing the firm’s community outreach initiatives to the charitable causes our firm and our employees are passionate about.
We are blessed to be able to celebrate these milestones and so fortunate to be part of a wonderful team of professionals who care so greatly about our clients and the work that we do. We are grateful for clients and friends who place their trust and confidence in us, and we look forward to many more milestone celebrations in years to come.