Capital Market Implications for the Week of September 3 - 7, 2018

Maureen Kelliher, CFP

Maureen Kelliher, CFP

September 12, 2018

Weekly Economic Review

Weekly Macro Updates

 Initial Jobless Claims (Sept 1) 213k est., 203k actual, 213k prior

 Continuing Claims (Aug 25) 1720k est., 1707k actual, 1710k prior

 NFIB Small Business Optimism (Jul) 106. 8 est., 107.9 actual, 107.2 prior

 Trade Balance (Jul) -$50.2b est., -$5.01b actual, -45.7b prior: R+

 ADP Employment Change (Aug) 200k est., 163k actual, 217k prior

 Change in Nonfarm Payrolls (Aug) 190k est., 201k actual, 147k prior: R-

 Two-Month Payroll Net Revision (Aug) -50k actual

Unemployment Rate (Aug) 3.9% est., 3.9% actual, 3.9% prior

 Underemployment Rate (Aug) 7.4% actual, 7.5% prior

Average Hourly Earnings MoM (Aug) 0.2% est., 0.4% actual, 0.3% prior

 Average Hourly Earnings YoY (Aug) 2.7% est., 2.9% actual, 2.7% prior

Labor Force Participation Rate (Aug) 62.7% actual, 62.9% prior

 NFIB Small Business Optimism (Aug) 108.1 est., 108.8 actual, 107.9 prior

 ISM Non-Manufacturing Index (Aug) 56.8 est., 58.5 actual, 55.7 prior

 Strong or Improving

 Inconclusive or lacking trend

 Weak or declining

R+ Revised up

R- Revised down

August’s employment numbers released last week were impressive. Although August’s payroll report is often shy of estimates, this year’s report was a better-than-expected 201,000 jobs. The net revisions to June and July payrolls were negative, however the three-month average of job gains was still a healthy 185,000. The unemployment rate held steady at 3.9% while the underemployment rate fell to a multi-year low of 7.4%. The report’s big surprise was a jump in wage growth both for the month and year-over-year. At 2.9%, wages over the last 12 months hit a nine-year high. With wages finally accelerating, the Federal Reserve will not only increase interest rates in September but potentially December as well.

Stocks hit a speed bump last week, as both trade and political headlines dominated activity. For the week, the Dow Jones Industrial Average fell – 0.1% and the S&P 500 Index sank -1.0%. As investors moved to protect profits last week, the technology sector suffered the most, closing off -3.0%, while more defensive sectors including consumer staples and utilities rose more than 1.0%. International stocks were once again pummeled by the threat of escalating trade tensions. As such, both the MSCI EAFE Index and emerging markets plunged -3.0%. Bonds turned negative last week, after news of accelerating wage pressures sent interest rates higher. Therefore, for the week, all bond sectors declined, with10-year municipal bonds and high yield bonds easing less than -0.3%, while the Barclays U.S. Aggregate Bond Index and U.S. corporates fell approximately -0.5%.