August 6th, 2021
Bulls are coming in hot in the first trading week of August, pushing the S&P 500 to another record high. A strong July jobs report, as well as robust services and manufacturing data, helped spur the index to its 44th record high of the year. Businesses added 943,000 workers to the payrolls, besting estimates of 845,000. The jobs gains were fueled by a booming services sector with the ISM Services Index notching another record high in July. Manufacturers also registered further gains in July. A strong crop of economic reports helped spur the S&P 500 to a 0.94% gain for the week and a new record high of 4,436.52.
Jobs Are Booming
Business is booming, prompting employers to add 943,000 workers to their payrolls in July. That’s the fastest hiring pace in nearly a year. The payroll gains helped push the unemployment rate from 5.90% in June to 5.40% in July. Jobs gains were broad-based, with the Covid-battered leisure and hospitality industry leading the gains with 380,000 hires. Government hiring also rose during the month, adding 240,000 jobs. Universities and public school districts fueled the gains as they staffed up ahead of a new school year. Professional and business services and transportation and warehousing rounded out the top hiring sectors, adding 60,000 and 50,000 to the payrolls, respectively. The war for talent also saw workers enjoy a bump in their paychecks as wages rose 4.00% from year ago levels. However, wage gains are expected to ease in the coming months as demand for labor, particularly in hard-hit Covid sectors moderate. Overall, the jobs report was well received by the Street, demonstrating businesses remain confident to continue to add to their payrolls despite the recent rise in Covid-19 delta variant cases.
Summer Spending Lifts ISM Services Index to Record High
Consumers continued to make the most of Summer 2021, hitting up their favorite destinations and spending at a sizzling pace. The ISM Services Index, which measures services activity, jumped to a record high of 64.1 in July. That was up from 60.1 in June. Numbers above 50 indicate expansion in the services sector, while numbers below 50 indicate contraction. New orders drove the index higher, rising to 63.7 from 62.1 in June. With businesses facing slim inventories, further gains are expected as businesses look to restock to meet strong consumer demand. The report also suggests Q3 2021 is off to a strong start as the services sector accounts for more than two-thirds of U.S. economic activity.
Manufacturing Sector Cools
The ISM Manufacturing Index cooled to 59.5 in July, down from June’s 60.6 reading. The decline was driven by a drop in the ISM survey’s measure of prices, which fell to 85.7 in July from 92.1 in June. The move could be the first signs of price relief for manufacturers which have struggled to procure goods amid supply bottlenecks and strong customer demand. With consumers beginning to shift their spending from goods to services and supply chain bottlenecks showing signs of easing, further price declines could be on the horizon. That will lend support to the Federal Reserve’s case that inflation is temporary and will begin to subside once Covid-induced supply chain issues are resolved. Although demand for goods looks to cool from record highs, it is still expected to remain healthy in the months to come.
Bullish sentiment remained strong on the Street despite the surge in Covid-19 delta variant cases sweeping across the U.S. Strong data on jobs, services, and manufacturing signaled Q3 2021 GDP is off to a strong start, offering encouragement to market bulls. Investors were also encouraged this week by a strong uptake in Covid vaccinations amid a rise in delta variant cases. According to CDC data published earlier this week, 70% of U.S. adults have received at least one shot of the Covid vaccine which brings the country closer to herd immunity. On Thursday alone, a record 864,000 vaccinations were recorded which included 585,000 first doses. That tally is expected to move higher as many businesses are now requiring vaccines for employees and, in some instances, proof of vaccinations for patrons. Overall, markets remain bullish the U.S. economy is in a relatively strong position to weather the current Covid wave and maintain its economic rebound.
The Week Ahead
All eyes will be on the consumer and producer price indexes for signs inflation will continue to ease. We’ll also check in on the state of the global economy as China releases trade data.
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The World’s Largest Museum Celebrates 175 Years
The Smithsonian celebrates its 175th anniversary this month. In August 1846, U.S. President James K. Polk signed the Smithsonian Institution Act into law, establishing what would become the world’s largest museum and education complex encompassing 19 museums, nine research facilities, and The National Zoo.
The Smithsonian Institute was established with funds from a British scientist who had never set foot in America. James Smithson (1765 – 1829) drew up a will in 1826 naming his nephew as the beneficiary of his estate. Smithson stipulated that, should the nephew die without heirs, as he did in 1835, everything in his estate would go to the United States to found “at Washington, under the name of the Smithsonian Institution, an establishment for the increase and diffusion of knowledge.”
The bequest led to controversy within the U.S. government for a variety of reasons. Some felt that the federal government should not accept such a large gift from a foreigner and that it would be unconstitutional. Others argued that the federal government accepting the gift on behalf of the entire nation would abridge state’s rights. There were concerns that the U.S may not have the capacity to uphold the legacy of the gift. President Andrew Jackson believed the gift presented a valuable opportunity for the people of the United States and asked Congress to pass legislation that would give him the authority to accept the gift, which they did in 1836. President Jackson immediately sent a diplomat to England to negotiate a transfer of the funds.
Richard Rush, a lawyer and diplomat, spent two years in England pursuing the U.S. claim. International finance was considerably complex prior to the days of electronic transfers. The mother of Smithson’s designated heir filed a counterclaim, but the court awarded Smithson’s properties to the U.S. in 1838. Rush sold the properties that comprised Smithson’s bequest and converted the proceeds into gold sovereigns. He set sail for home with 11 boxes containing a total of 104,960 gold sovereigns, 8 shillings, and 7 pence, as well as Smithson’s mineral collection, library, scientific notes, and personal effects on a six-week transatlantic voyage. Rush personally posted a $500,000 bond as insurance that he would not abscond with the gift. Rush transferred the gold to the U.S. Treasury, and the coins were melted down amounting to a value of $508,318.46. After considering a series of recommendations, including the creation of a national university, a public library, or an astronomical observatory, Congress agreed that the bequest would support the creation of a museum, a library, and a program of research, publication, and collections in the sciences, arts, and history.
Smithson was born in Paris to a wealthy widow and the the Duke of Northumberland. At the age of 22, he became the youngest person to be admitted to the Royal Society of London – Britain’s oldest and most prestigious scientific society. He published numerous scientific papers on mineral composition, geology, and chemistry. In 1802, he overturned popular scientific opinion by proving that zinc carbonates were true carbonate minerals, and one type of zinc carbonate was later named “smithsonite” in his honor. Although his father was a duke and his mother was a distant relative of King Henry VIII, Smithson was not welcomed into English society because his parents never married.
Smithson died at approximately age 64 while living in Italy. He had never travelled to the U.S., and the motives for his bequest remain largely a mystery. Some suggest that it was motivated by his rejection by English society and his vision of America as a meritocracy where science could take root and flourish. In 1904, when Smithson’s burial ground in Italy was to be displaced by the enlargement of a quarry, the Smithsonian Board of Regents voted to bring Smithson’s remains to the U.S. They were escorted from Italy by Alexander Graham Bell, a member of the Board of Regents, and posthumously reinterred in a crypt in the original Smithsonian building, known as “the castle.”
The castle was completed in 1855 at a cost of $318,727.01. Two years later, the Smithsonian was named the National Museum of the U.S. which made it eligible to receive federal appropriations to care for national collections. The Arts & Industries building opened in 1881 and was the first building to be constructed as a National Museum. It closed completely in 2004 due to structural concerns, but will open for the first time in two decades in celebration of the Smithsonian’s 175th anniversary this year. The Smithsonian continued to grow with the opening of the Astrophysical Observatory (1890), the National Zoo (1891), the Natural History Museum (1910), the National Museum of American History (1964), and the Air and Space Museum (1976), and the National Museum of African American History and Culture (2016) to name a few. Congress passed legislation in 2020 establishing two new museums at the Smithsonian, including the National Museum of the American Latino and the Smithsonian American Women’s History Museum, and is in the planning stages for both. The Institution is 62% federally funded with other sources of funding from private donations and revenue from operations. Admission to all museums is free. The museum and its research and education centers are credited with developing an American national identity based on exploration and discovery, innovation, heritage preservation, and the advancement of the sciences.