The stock market rallied last week as earnings season kicked off, and a host of economic data was released. We got data on September inflation, August Job Openings, September Retail Sales and more. Catch all the details below for this week’s Monday market update or listen on this week’s episode of Finance Explained.
Last Week in the Market
Last week the stock market got off to a rough start, following the higher than expected CPI report early in the week, but finished the week strong, including its best daily performance since March 2021 on Thursday, to finish the week up +1.8%. The market is now up +3.8% for the month of October, and +19% for 2021 year to date, despite September’s sell-off.
The yield on 10-year Treasury bonds, after ending last week at at its highest point since May, fell to its lowest yield in weeks on Thursday before bouncing back on Friday to end the week at 1.574%. Rationale on last week’s interest rate performance is mixed – higher reports on inflation, both from the Consumer Price Index and Producer Price Index, as well as higher than expected retail sales and lower jobless claims numbers are all more consistent with the Fed continuing it’s plans to begin to taper asset purchases next month and continue on their plan to raise rates. Some also believe the jobless claims numbers are better than they should be because workers who leave their jobs due to vaccine mandates are in most cases not eligible to file for benefits.
In general many of the market trends we’ve seen all year continue. Commodities, driven by inflationary pressures, continue to dramatically outperform, up +47.5% year to date. Higher risk, higher multiple stocks, like growth, small cap and the tech-heavy Nasdaq continue to exhibit more volatility and underperformance in the face of a rising interest rate environment, while value stocks and real estate outperform. So far in October, the S&P 500 is up +3.8%, while the Nasdaq is up just 3.1%, the Large Cap Value Index is up 4.0% and Vanguard Real Estate Index is up +4.5%.
While we are still waiting on budget reconciliation negotiations from Congress, last week we got a plethora of economic data, including:
- Tuesday – August Job Openings and Labor Turnover from the Bureau of Labor Statistics
- Wednesday – September Consumer Price Index from the Bureau of Labor Statistics
- Thursday – Weekly Jobless Claims for the week ended October 9, 2021
- Friday – September Advanced Retail Sales from the US Census Bureau
More on all these stories below or get the full update on this week’s episode of Finance Explained.
Weekly Jobless Claims for 10/9/2021: 293,000 new claims
Weekly jobless claims fell under 300,000 for the first time since the start of the pandemic.
For the week ended October 9th, new initial jobless claims were 293,000. Continued claims for the week ended October 2nd declined slightly to 2.6 million, a 1.9% insured unemployed rate, down 0.1% from the week prior.
Insured unemployment and continuing claims under all programs comes at a 2 week lag, so this is just the third week of data after the end of the federal programs, for the week of September 25th. Prior to the end of the federal programs, 80% of continued claims benefits were under the Federal PUA (for those who may not previously have been eligible for state benefits, like self-employed and 1099 workers) and PEUC (for workers who have exhausted the max weeks of benefits under state programs) programs.
As anticipated, we have seen a drop in insured continuing claims of 8.5 million since the week ending August 28th, the last week prior to federal benefits ending.
Remember, this doesn’t mean these people have gone back to work – it just means that their weeks of eligibility have ended, and they are no longer eligible to collect unemployment benefits. In addition, remember that the additional $300 per week of federal unemployment benefits has ended for everyone – even if they are still receiving state benefits.
How will this impact the labor market? The expectation was that it would encourage workers to return to the labor force… last week’s market update, shared the September Employment Situation which showed disappointing job gains, but is based on surveys conducted around the 12th of the month, so is hopefully just a matter of time. On the demand side of labor, this week’s JOLTs report, shows demand is strong as ever…
Next Data Point?
Weekly jobless claims are released by the Dept. of Labor every Thursday
August 2021 JOLTS Report: 10.4 million job openings, 4.3 million quits
If you only look at the supply side of the labor market – covered by measures like weekly jobless claims and the unemployment rate, on the surface, you might think the labor market is in pretty good shape.
The JOLTS Report – which stands for Job Openings and Labor Turnover – represents the demand side of labor. Supply of labor is the the workers willing to work, and the demand side is employers with job openings who want to hire. And job openings are at record levels. The August report released last week showed July job openings revised up to 11.1 million, the highest level ever recorded in the history of the data series going back to 2000. August openings were down slightly to 10.4 million, but still near the prior month’s record high.
From a demand perspective, employers have jobs to fill… the problem seems to be there aren’t any workers to fill them.
The tight labor market, with more job openings than workers available to fill them, is also reflected in the record high quits numbers. The JOLTS Report also reports monthly job separations, broken down into quits, layoffs and other. Quits represents people voluntarily leaving their job. High quits are a sign that workers have options – quits were trending higher and elevated pre-pandemic as well, when the unemployment rate reached 50-year lows. For August, there were 4.3 million quits on a seasonally adjusted and annualized basis, equivalent to a 2.9% quits rate (quits relative to total employment). The average is historically is 1.9%. Both metrics are the highest ever recorded in the history of the data series.
The tight labor market and desire by employers to both attract and retain existing workers is driving higher wages and increased benefits, which can be a good thing… but is also likely to drive further inflation in the overall economy.
You can also see the extremely elevated number of job openings in key sectors relative to February 2020, pre-pandemic, levels. Big picture, the economy today is producing as much if not more than ever before. GDP has surpassed the pre-pandemic peak. However, we are doing it with 5 million FEWER workers currently – and employers are currently trying to hire 2x as many as that!
Next Data Point?
September Job Openings and Labor Turnover report will be released Friday, November 12th
September 2021 Consumer Price Index: +5.4% over the last 12 months
The economic data point most directly impacting your family finances, and financial markets, over the last year, continues to be inflation. And last week we got the first monthly economic release that tracks inflation: the consumer price index, or CPI.
For September 2021, the CPI was up +5.4% over the last 12 months, and up 0.4% vs. August. To be consistent with the Fed’s long-term goal of price stability, which they set as 2% long-run average inflation, we would have to see monthly CPI increases of no more than 0.16%. The September monthly increase is 2.5x that.
The largest drivers of inflation in September were food (+0.9% for the month) and energy (+1.3% for the month, +24.8% over the last 12 months).
Some continue to believe inflation is only transitory and is due to weak comparisons vs. 2020. However, whether you look at just the month-over-month comparisons or annualized comparisons to pre-pandemic prices, inflation is elevated well beyond the Fed’s 2% target.
What does this mean for your family finances? Food, energy, and other commodities make up nearly half the weight of the consumer price index, which is supposed to represent what the average consumer household spends. Rising prices in those areas significantly impact the costs borne by your monthly budget.
Of greater concern? Shelter costs. These represent the largest component of the consumer price index (38%), and thus the largest component of most household budgets. The impact of home price increases, as well as the potential increase in interest rates in the next two years, are not yet fully reflected in the CPI, and yet shelter prices are already up +3.2% over the last 12 months. As that increases, household budgets will be stretched even more – and already are for those who have already faced lease renewals in the last month or two.
Next Data Point?
October CPI will be released Wednesday, November 10th
September 2021 Advanced Retail Sales: $625.4 billion, +0.7% vs. August
Advanced retail sales are the first estimate we get every month that gives us an indication of the health of the American consumer… and this is critical because remember, consumer spending is 2/3s of GDP.
For September 2021, advanced retail sales were $625.4 billion on a seasonally adjusted and annualized basis. This was up +0.7% vs. August. However, it is important to note that these numbers are not adjusted for inflation so higher prices also boost these numbers.
When you look at recent months, you can also see how much higher retail sales are vs. the historical trendline. In March 2021, retail sales got a healthy boost from direct stimulus checks, but since then, they have generally been trending flat-to-down since.
Retail sales were up across the board in September, with Retail up the most (+0.8%), likely spurred by delayed back-to-school shopping. Year over year comparisons are more extreme, as we are comparing September 2021 to pre-vaccine, September 2020. Restaurants, in particular, have seen the biggest recovery, up +29.5% vs. a year ago.
Next Data Point?
October Advanced Retail Sales will be released November 16th
Good news on the pandemic front continues. New cases are down over 53%% since the start of September, with new daily deaths beginning to decline now as well. The rate of hospitalizations and deaths, relative to new cases, also continues to decline.
Vaccinations also continue to increase, albeit more slowly than last spring. Currently, over 77% of those over the age of 12 (the eligible population) have received at least 1 dose. I should also note the CDC is now also tracking and reporting booster shots, though not everyone is currently eligible for boosters.
The FDA has been busy reviewing boosters for both J&J and Moderna, as well as expanding access for children under 18 to Moderna. Last week, the FDA delayed approval of the Moderna vaccine for 12-17 year olds as they review “rare myocarditis side effects.”
This week, the FDA is reviewing data around mixing and matching boosters, which may allow people to receive a booster different from the vaccine they originally received. There is also an FDA meeting scheduled for 10/26 to review the Pfizer vaccination for children under 12.
Next Data Point?
CDC tracks and reports pandemic data daily via the CDC Covid Data Tracker
This week in the markets, we will continue to watch the progress in Congress on the Senate’s budget reconciliation, aka the $3.5 trillion spending bill. On the economic front, there are a few releases around the housing market:
- Tuesday – New Housing Starts
- Thursday – Existing Home Sales
In addition to those, Q3 earnings season continues – so look for movement in the stock market based on earnings surprises.
Questions about this week’s update or recent financial headlines? Tune in to Live Q&A with Family Finance Mom every Monday and Wednesday at 9AM ET on Instagram. Look for the question box in stories to leave your questions, or watch and ask them live.