Slow work. Stocks eked out some gains on Friday amidst a stronger than expected employment number. Stimulus talks in DC stalled once again leaving investors on edge.
N O T E W O R T H Y
Labor force. What is it that makes the American economy tick? You know the answer. It is the workers that clock in every day and produce goods and services. Those workers, in turn, get paid wages which they then spend on… goods and services. The important thing to note in these past few statements, which I have obviously placed as a set up, is that wages create the power to purchase. The power to pay rent, mortgages, utilities, and food is dependent on wages. Beyond the necessary expenditures, we end up with what economists refer to as discretionary income. That is what consumers use to purchase non-essential items. This is sometimes mistaken for what economists refer to as disposable income, which is the money you have left over after paying taxes. Let’s focus on that. If someone is unemployed, they lose their disposable income. Applying for unemployment might help recover some of the losses while looking for a new position. Unemployment benefits were around $375 per week on average in 2019, though they vary from state to state. You might be thinking, “Wow, that is not a lot of money”. Is it? Let’s see. According the Bureau of Labor Statistics, Americans spend $5,102 on average in their monthly budgets. The largest expense is Housing ($1,674) followed by Transportation ($813), Insurance ($608), Health Care ($414), and Groceries ($372). That is $3,881 for the basics, which does not include Entertainment ($269), Apparel ($156), Education ($117), or Personal Care ($64). If you have been keeping count you would note that the $1,500 average monthly unemployment wouldn’t even cover monthly average housing expenses, never mind food or healthcare. There are lots of varying numbers on the average length of unemployment. Let’s call it 1 to 6 months and that is highly dependent on the state of the economy. Last Friday the Bureau of Labor Statistics reported that 1.763 million new jobs were added in July, narrowly beating expectations. The Unemployment Rate came in at 10.2%, down from last month’s 11.1%. Hiring is happening and the unemployment rate is ticking down, but there are still roughly 30 million Americans on unemployment. If we focus on the economic impact of that for a minute, we can see, given the high-level numbers I provided above, just how devastating this current situation is on the economy. The Federal Reserve has done virtually everything in its power to shore up the banking systems and provide companies with financial easing with hopes of limiting layoffs and bankruptcies. The Government quickly enacted the bi-partisan CARES act which would add further backstops for struggling companies. Remember those numbers from earlier? Adding an additional $600 per week in unemployment benefits would ensure that many victims of the crisis could continue to pay bills. Remember we are using averages here. $600 per week added to the unemployment insurance brings the total monthly benefit to $3,900, which is just around the average amount spent on basic necessities. This has not only helped families stay solvent while searching for new jobs, but also kept payments flowing into the economy. With the $600 weekly boost running out 2 weeks ago, many will soon be unable to make those payments, which will not only impact families’ well-being, but also the companies that rely on their business. These are surely, unprecedented times which call for extreme measures. WHILE YOU SLEPT, the President issued an executive order yesterday which would extend the additional weekly unemployment benefit at $400, in addition to several other measures. It is not yet clear whether the orders will be legally challenged, nor is it clear how and when these payments will be made. While the stopgap measure may fall short and be undesirable, something is better than nothing. Perhaps lawmakers on Capitol Hill will take the executive orders as a call to action to get a more comprehensive deal done. The economy is starting to show some signs that it is beginning to turn the corner, even in the midst of resurgence in virus cases. Keeping that positive momentum is critical.
THE MARKETS
Stocks rose on positive unemployment numbers but the rally was overshadowed by stalled talks over a new economic stimulus plan. The S&P500 climbed by +0.06%, the Dow Jones Industrial Average advanced by +0.17%, the Russell 2000 Index traded up by +1.59%, and the Nasdaq Composite Index slipped by -0.87%. Bonds slipped and 10-year treasury yields rose by +2 basis points to 0.56%.
NXT UP
- JOLTS Job Openings (June) may have slipped from 5.397 million to 5.3 million.
- Chicago Fed President Charles Evans will speak today.
- This morning, Duke Energy beat expectations while SeaWorld, Marriott, and Royal Caribbean missed. After the bell, we will hear from Sunrun, Occidental Petroleum, Simon Property Group, ZoomInfo, Taubman Centers, and Novavax.
- Earnings begin to wind down this week and we will get CPI, PPI, Retail Sales, Industrial Production, and University of Michigan Sentiment. Please refer to the attached