Most equity markets finished lower on the week, although commodity prices were generally higher. Gold and silver struggled with the stronger dollar.
There were two big macro reports. The first concerned inflation. The Consumer Price Index for August was up +5.25% year-over-year, down from +5.37% the previous month. Core was up +4.00%, as you can see below.
While you can’t tell from the chart above, this report was interpreted as good news for inflation because the rate of change is slowing. The CPI for August was up +0.27% – that’s the smallest monthly increase since January 2021 (+0.26%), and not far off from the January 1995-February 2020 monthly average of +0.18%.
The other major economic repot was retail sales for August. This handily beat expectations with a + 0.7% gain versus an expected decline of -0.8%. Sales are up +15.1% from August 2020.
On the Cusp of a Slowdown or a Jobs Boom?
Talk to any small business owner today and you’ll quickly hear how hard it is to hire people. Service businesses in particular are having to curtail hours and services due to the lack of applicants. But could this change in the months to come?
As of Labor Day, 7.5 million out-of-work Americans completely lost their unemployment benefits. A further 3 million saw their payments cut by $300/week. The loss of unemployment benefits will reduce aggregate personal disposable incomes by around $300bn at an annual rate. Assuming that all the jobless benefits were being spent, this could lower the growth in consumer spending by nearly 2%.
But will many of those people now enter the workforce? Generous government benefits supported consumer spending and the economy since the pandemic started. The economic expansion will now largely depend on how quickly the labor market improves. There are certainly plenty of jobs out there. The chart below shows the number of unfilled jobs.
The chart below is another way to show the same thing. The blue line shows the number of unemployed while the yellow line shows job openings. Usually, the number of unemployed far exceeds job openings. No longer.
One last chart on the labor market. Blue line is the number of small businesses having a hard time filling positions. Yellow line shows those businesses who plan to hire in the next year.
This is likely to be the story for 2022. Do people flood back into the labor market now benefits have expired, or will the economy struggle now that consumer support payments have expired? We suspect hiring will pick up substantially, but time will tell.
Finally, next week the Fed meets and this should be a rather eventful get-together. We expect the committee to more clearly tee up the November FOMC meeting for an announcement for the start of tapering (reduced asset purchases). The other key will be the release of new interest rate forecast. Expectations are for a year-end 2022 rate hike followed by three hikes in 2023. Again, time will tell.
Charts We Found Interesting
1. Case counts are no longer growing rapidly, but then again, they aren’t falling either.
2. The good news is that hospitalizations seem to be in a downtrend.
3. If you are an oil company you are going to have a hard time raising capital in the years to come (Harvard just recently swore off owning carbon intensive investments). As you would expect, oil companies aren’t investing much in production anymore.
4. No surprises here other than maybe the nuclear numbers.
5. Despite this, Asian coal consumption (and global coal prices) have been on a tear.
6. Uranium has made a strong move this month on tight supplies and growing investment demand.
7. I don’t care what the chart says, there is no way this can realistically happen unless we start growing fish in a lab (which is being tried).
8. Drove by Mt. Shasta this week and it is bare. This satellite photo comparison shows just how dry the mountain is.
Have a good weekend.
Published by Gemmer Asset Management LLC The material presented (including all charts, graphs and statistics) is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The material is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objective, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances and, if appropriate, see professional advice, including tax advice. The price and value of investments referred to in this material and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or prices of, or income derive from, certain investments. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Gemmer Asset Management LLC (GAM). Any mutual fund performance presented in this material are used to illustrate opportunities within a diversified portfolio and do not represent the only mutual funds used in actual client portfolios. Any allocation models or statistics in this material are subject to change. GAM may change the funds utilized and/or the percentage weightings due to various circumstances. Please contact GAM, your advisor or financial representative for current inflation on allocation, account minimums and fees. Any major market indexes that are presented are unmanaged indexes or index-based mutual funds commonly used to measure the performance of the US and global stock/bond markets. These indexes have not necessarily been selected to represent an appropriate benchmark for the investment or model portfolio performance, but rather is disclosed to allow for comparison to that of well known, widely recognized indexes. The volatility of all indexes may be materially different from that of client portfolios. This material is presented for informational purposes. We maintain a list of all recommendations made in our allocation models for at least the previous 12 months. If you would like a complete listing of previous and current recommendations, please contact our office.