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Week in Review: October 8, 2021

Recap & Commentary

Markets managed to eke out modest gains, following a temporary solution to the U. S. debt-ceiling impasses. With time running short to raise the debt ceiling before October 18 – the date by which it was estimated that the U. S. would no longer be able to meet its debt obligations – markets had become increasingly volatile. However, following a short-term extension of the debt ceiling until early December, markets were able to recoup some of the previous week’s losses. Volatility may not subside for long, however, as Congress has just eight weeks  to address the budget and debt ceiling before both expire again.

Investors struggled to discern the effect of the September jobs report. Just six months ago, such disappointing data would likely have been viewed as a “positive” with respect to extending the Federal Reserve’s current monetary policy. However, following the Fed’s September meeting, Federal Reserve Chair Jerome Powell made it quite clear that barring a terrible September jobs report the central bank was poised to move forward with asset tapering at its November meeting.

While weaker than expected, the report likely didn’t rise to the level of terrible in the Fed’s eyes. Thus, with the Fed committed to tapering. Investors were left to accept the report at face value, which is to say that it pointed to weaker-than-expected labor market conditions and did nothing to dissuade from the narrative that third quarter growth likely decelerated significantly from the second quarter. To that end, the Atlanta Fed’s much watched GDPNow forecasting model expects 3Q21 GDP growth to be just 1.3%. The current consensus forecast is more optimistic, calling for 4.8% growth.

Economic Bullet Points

Nonfarm payrolls added just 194K jobs in September, well below the forecasted level of 500K, and the 366K jobs added in August. Unemployment fell 0.4% to 4.8%, the lowest level since March 2020. Calculated using the BLS’ “household” survey data, as opposed to nonfarm payrolls, the unemployment rate benefitted from the addition of 526K new jobs added (a positive) and 183K individuals leaving the workforce (a negative).

Services activity continued to expand in September aided by strong new orders. Prices, which were already running at very high levels, saw a further increase seemingly corroborating recent comments by Fed Chair Powell that supply chain problems are “not getting better, in fact at the margin apparently getting a little bit worse.” While the current upward pressure on prices is ultimately expected to abate, it will require an improvement in supply chains, something not currently expected to occur until at least mid-2022.

The trade deficit increased 4.2% in September to $73.3B, led by continued strong domestic demand for imported goods which rose by 1.1% to $239B.

Weekly jobless claims fell 38K to 326K, the second lowest level of the recovery.  More importantly, the drop snapped three consecutive weeks of increases.

Of Note

In a 12-2 decision, Poland’s constitutional court ruled this week that Polish laws take precedence over European Union laws when the two clash. The decision drew criticism from European Union officials and raised concerns about Poland’s long-term inclusion in the Union.

S&P 5000.8%
Small Caps-0.4%
Intl. Developed0.3%
Intl. Emerging0.8%
Commodities1.7%
U.S. Bond Market-0.8%
10-Year Treas. Yield1.61%
US Dollar0.1%
WTI Oil ($/bl)$80
Gold ($/oz)$1,757

The Week Ahead

  • Consumer Inflation (CPI)
  • Producer Inflation (PPI)
  • Retail Sales
  • Consumer Sentiment
  • Weekly Jobless Claims

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