It was another rough week in the stock market. Market volatility remains higher as uncertainty looms from both the economic outlook, as well as debates in Congress around the debt ceiling and major spending bills. 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 was another rough week for the stock market. The market finished the month of September down -4.8%, the worst monthly performance since March 2020, when lockdowns began. For the week ending October 1st, the market was down 2.2%.
Both 10-year treasury bond yields and the stock market were impacted last week by the debates in Congress. Remember – there’s nothing the stock market hates more than uncertainty. Early in the week, the failed vote on the debt ceiling and temporary budget weighed on the market. Mid-week, Treasury Secretary Janet Yellen put a firmer deadline on the debt ceiling of October 18th, amping up the pressure on Congressional negotiations. And Friday, the market did recover some of the week’s losses after Congress passed and President Biden signed late Thursday a temporary budget measure to fund the government through early December. This avoids a shutdown, but the debt ceiling issue remains.
Bond yields fell over the course of the week to end close to where they ended the week prior – at 1.465%. Concerns over the debt ceiling and a potential US default pushed rates as high as 1.546% early in the week, along with the ongoing debate around $4.5 trillion in spending bills ($3.5 trillion social spending bill plus $1 trillion infrastructure bill). As progress on both of those stalled and talks seem headed for a lower price tag, and the government shutdown was avoided, rates eased off a bit.
In addition to the ongoing debates in Congress, last week we also got data on:
- Weekly Jobless Claims for the week ended September 11, 2021
- August Disposable Income, Consumer Expenditures and the PCE Price Index.
More on all these stories below or get the full update on this week’s episode of Finance Explained.
Weekly Jobless Claims for 9/25/2021: 362,000 new claims
Weekly jobless claims increased for the second consecutive week, bucking a prior downward trend.
For the week ended September 25th, new initial jobless claims were 362,000. Continued claims for the week ended September 18th declined slightly to 2.8 million, a 2.0% insured unemployed rate, and decrease of 0.1% from the week prior.
We did see close to zero initial claims under the Federal Pandemic Unemployment Assistance program – new claims can still come in for weeks of job loss prior to the September 4th cut-off date, which accounts for the small number of claims we may still see going forward.
Insured unemployment and continuing claims under all programs comes at a 2 week lag, so this is the first data after the end of the federal programs, for the week of September 11th. 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 saw a drop in insured continuing claims of 6.2 million in a single week. Remember, this doesn’t been people have gone back to work – it just that their weeks of eligibility have ended and they are no longer collecting 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? I expect it to have led to reduced unemployment in September as people went back to work once benefits ended. We will get the September Employment Situation report, which surveys both businesses and households on employment status on Friday, October 8.
Next Data Point?
Weekly jobless claims are released by the Dept. of Labor every Thursday
September Employment Situation due this Friday, 10/8
August Income, Spending & PCE Price Index
The Bureau of Economic Analysis released the Personal Income and Outlays report for August on Friday.
This gives us an aggregate snapshot of Disposable Personal Income vs. aggregate Personal Consumption Expenditures, a leading indicator for overall GDP. It also gives us the Fed’s favored measure of inflation, the PCE Price Index, which reflects prices on what consumers are actually buying vs. the fixed basket CPI.
For August, Disposable Personal income was up just 0.1% from July. However, on a real basis, adjusted for inflation, Disposable Personal Income was down -0.3% vs. July. It should also be noted that Disposable Personal Income has not risen in 2021 in any month without some form of direct stimulus payments. Currently, families are receiving advanced child tax credit payments. Watch the data in September to see how incomes are impacted by the end of the federal unemployment benefits.
Despite low-income growth, August PCE was up more – +0.8% vs. July – as savings rates declined. Many attribute increased spending to back-to-school expenditures.
The PCE Price index was up +4.3% over the last year. It has not had this high an annual increase since the early 1990s. Energy prices continue to be a major driver, up +24.9%, as do the price of goods, which often help reduce the price index and are currently elevated due to supply chain bottlenecks resulting in shortages.
Next Data Point?
Personal Income & Outlays for September due this October 29th
Political Update: The Budget Deadline, The Debt Ceiling, and the $3.5 Trillion Spending Bill
In addition to the debt ceiling and spending bills being debated in Congress last week, they faced another deadline as well. The federal government follows a 9/30 fiscal year-end. Congress is supposed to pass a budget to fund the government before the fiscal year ends… and they just made it.
Late Thursday, both the House and the Senate passed a temporary budget measure to fund the government through early December. This buys them time to pass the Senate’s larger budget reconciliation measure. But know we could face this very same issue again right after Thanksgiving in they don’t.
What about the Debt Ceiling?
This is still a looming problem. As discussed in more detail in last week’s market update, Treasury Secretary Yellen, who’s in charge of paying the government’s bills, estimates we will exhaust all extraordinary measures and face default on our obligations if the debt ceiling is not raised by October 18th.
Congress still has to take action here.
$3.5 Trillion Budget Reconciliation Bill
That leaves the currently proposed $3.5 trillion spending bill before the Senate in the form of a Budget Reconciliation bill. And the $1 trillion infrastructure bill that there is bipartisan agreement on, but Progressive Democrats in the House won’t vote on it until there’s a deal on the bigger social spending bill.
This is largely Biden’s American Families Plan. The text of the Budget Reconciliation bill as currently written provides very little in the way of specifics – it’s more a list of dollar amounts by year apportioned to various committees. Those committees then write bills as to how they will spend the money once approved. A Democrat Senators memo from August 2021 gives a rough budget resolution framework as to what the spending is supposed to be for. More than half – $1.8 trillion – is designated for working families, including tax cuts for those making under $400,000, the elderly and climate change. There’s over $100 billion for immigration, granting lawful permanent status for qualified immigrants. Over $700 billion is designated for Health, Education, Labor and Pensions, which includes initiatives like universal preschool, affordable childcare for working families, and tuition-free community colleges.
And it’s all proposed to be funded by the tax hikes we discussed two weeks ago – raising taxes on corporations and those earning more than $400,000.
The alleged $3.5 trillion spending bill projects the national debt to hit more than $45 trillion by 2031, a 57% increase over the next 10 years. For perspective, that’s almost the size of the entire US bond market currently, which includes all the national debt plus all the debt issued by corporations today. It’s bigger than the entire market cap of the S&P 500, which is currently $38.2 trillion. It’s more than double the current GDP. And even if the government decided to seize the entire wealth of all the billionaires in the US, it would only amount to $4.8 trillion – which just covers one year of proposed spending under the proposed budget reconciliation.
We also don’t yet have the Congressional Budget Office’s analysis of what these proposals will truly cost… some experts peg the cost at something upwards of $5.5 trillion.
The latest here is there finally seems to be some movement and acknowledgment that the price tag is just too high to pass as is… stay tuned this week as negotiations continue to see what’s in, what goes, and what tax changes get thrown out too.
Good news on the pandemic front continues. New cases are down over 36% 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 75% 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.
The other big news on this front? Merck announced Friday that its experimental pill for people sick with COVID-19 reduced hospitalizations and deaths by half. If approved by regulators, this would offer a treatment therapy akin to Tamiflu for the seasonal flu, adding another awesome tool to fight and bring an end to the pandemic.
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 debt ceiling and the Senate’s budget reconciliation, aka the $3.5 trillion spending bill. On the economic front, it’s a big week for employment data with the September Employment Situation report due out Friday.
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.