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Week in Review: September 3, 2021

Recap & Commentary

Markets drifted higher over the course of the week, biding their time for the release of the August employment report. When it finally arrived on Friday, investors weren’t quite sure what to make of it. On a headline basis, the report was disappointing. The 235K new jobs added were well below both the consensus estimate of 750K and the low end estimate of 400K. However, beneath the surface there were some silver linings for the optimists. Wages increased 0.6% during the month, the previous two months were revised upwards by a collective 134K, and the household survey data, upon which the unemployment rate is calculated, showed 509K new jobs were added.

Investors also struggled to discern the report’s impact on monetary policy.  Prior to its release, it was widely assumed that a strong report would be enough for the Fed to formally announce its tapering plans at its upcoming September meeting. Now the question is whether or not the Fed will wait until its November meeting in order for officials to assess additional economic data to determine whether or not the August employment report was an aberration, or an indication that the current recovery is waning.

China’s manufacturing and services sectors contracted in August for the first time since early 2020. The slowdown was the result of the country’s strict efforts to limit the spread of the coronavirus, ongoing supply chain issues, and in the case of manufacturing, higher raw material costs. In true bad-news-is-good fashion, the slowdown raised the prospects of additional stimulus.

Economic Bullet Points

U.S. employment slowed in August to its weakest pace since January, as employers added just 235K new jobs. Unemployment, however, fell 0.2% to 5.2%, thanks to stronger household survey data, the metric used to calculate the unemployment rate. With enhanced unemployment benefits ending over the weekend, schools largely back in session, and job openings at record highs, economists are hopeful that employment will rebound in the months ahead.

Manufacturing activity, as measured by industry group ISM, accelerated slightly in August, exceeding expectations. A slight contraction in employment highlighted the ongoing difficulty companies face in attracting and retaining employees. New orders increased, reflecting strong demand. In another sign that inflation may be peaking, prices paid fell to their lowest level since last December. According to the report, companies continue to struggle meeting “unprecedented levels” of demand, impacted by supply chain issues ranging from procuring critical basic materials to transporting products.

Services activity slowed some in August, but remained at robust levels as employment and new orders remained largely unchanged.

US consumer confidence fell to a six-month low as the ongoing spread of the coronavirus Delta variant and higher inflation weighed on American’s views.  The drop corroborated the recent sharp decline in consumer sentiment data.

Of Note

SEC Chairman Gary Gensler indicated that the SEC is considering a ban on payment for order flow (PFOF), a controversial practice that allows retail brokers to provide commission-free trades.

S&P 5000.6%
Small Caps0.7%
Intl. Developed1.7%
Intl. Emerging3.4%
Commodities0.8%
U.S. Bond Market-0.1%
10-Year Treas. Yield1.32%
US Dollar-0.6%
WTI Oil ($/bl)$69
Gold ($/oz)$1,832

The Week Ahead

  • Producer Inflation (PPI)
  • JOLTS Job Openings
  • Weekly Jobless Claims

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