The stagflation scare continues. Economic bottlenecks are lasting longer than expected. There have been new disruptions in the third quarter (eg, harsh weather, new auto plant shutdowns). The Conference Board measure of consumer confidence fell in August. U.S. vehicle sales plunged again to a 13.1 million SAAR. We’re lowering our forecast for U.S. real GDP growth in the third quarter to 2% q/q A.R. from 4.8% previously. We’re relying on inventory rebuilding to contribute to growth, as consumer spending flattens.
U.S. nonfarm payrolls surprised to the downside in August, rising just 235,000 m/m. There were upward revisions to prior months, but not enough. Leisure & hospitality was flat m/m, consistent with renewed health concerns driving the weakness. The ISM services PMI also declined to 61.7 in August.
The household jobs survey was stronger, however, with U.S. unemployment falling to 5.2% and the labor force participation rate holding steady. There also continued to be upward pressure on wage growth, with average hourly earnings up +0.6% m/m and 4.3% y/y. Inflation has not been transitory so far.
The U.S. mfg PMI showed new orders remained elevated in August at 66.7. Manufacturers have continued to hit snags in production & transportation.
Bottom line: despite recent discussions (eg, Jackson Hole), September is too early for a Fed QE taper based on last week’s labor data. But the fourth quarter is still possible, given recent wage pressures & inflation concerns. Aggressive bond purchases are not a policy that fits with a supply-constrained economy. The 2021 plan still seems to be to taper QE soon (to help address inflation) while holding off on any rate hikes for an extended period (to aid growth).
As we’ve noted previously, 2020 saw a lockdown-related deflation scare. The First half of 2021 saw an inflation scare. The second half of 2021 has morphed into a stagflation scare. The stagflation scare should pass, as conditions generating price spikes ebb (eg, bottlenecks ease), but we’re on a choppier path & facing a weaker third quarter.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.
Economic Report: Home prices rise at record pace for thir...
Home prices are rising in every state across the U.S.
Sep 6, 2021
China's Exports Strengthen, Despite Covid-19 Disruptions
Exports unexpectedly expanded at a faster clip in August, shrugging off the impact of a global resurgence of the coronavirus pandemic, port congestion and supply bottlenecks.
Wall Street Journal
Sep 7, 2021
US ports see shipping logjams likely extending far into 2022
Leaders of some of the busiest U.S. ports expect congestion snarling maritime gateways to continue deep into next year, as the crush of goods from manufacturers and retailers looking to r...
Sep 5, 2021