The big news last week was signs of cooling, but resilient, labor markets. With the prior week’s positive second quarter GDP surprise, there is growing support for the idea that the Fed can achieve a “soft landing” for the U.S. economy and avoid a recession.
- Job openings dropped to the lowest level since April 2021, but are still 2 million higher than pre-pandemic levels. The monthly decline in the employee “quits” rate, which is highly correlated with lowering wage growth, will be a positive contributor to lowering inflation.
- The July employment report released last Friday showed employment increased by 187,000 in July and that June employment growth was revised down to 185,000, both weaker than expected. Because of differences in the household survey, the unemployment rate dropped back to 3.5%.
- With wage growth slightly higher in July (month/month), the recent increase in labor productivity will be helpful in bringing down “unit labor costs” which is needed by the Fed to achieve its 2% inflation target and to ending its interest rate increases and quantitative tightening.
- July CPI inflation will be reported this Thursday. No big change is expected with both headline and core CPI inflation anticipated to be 0.2% month/month.
Many are asking if the Fitch downgrade of U.S. Treasuries from AAA to AA+ had or will have a big impact on stock and bond markets. Most likely not, but the downgrade captured attention from media who associated it with subsequent market changes.
- Last Tuesday (August 1) at 5 p.m. the downgrade was announced. The downgrade cited “fiscal deterioration,” “erosion of governance,” etc., which are concerning and not likely to change any time soon.
- Immediately thereafter the 10-year Treasury bond yield declined (yes, not increased) from 4.03% to 4.01%. In the following days it trended up to 4.19%, the highest since last November, in recognition of the U.S. Treasury announcing hundreds of billions of dollars in new bond issuance.
- The S&P 500 declined 2.33% for the week in reaction to the weaker jobs report, higher interest rates and some disappointing earnings reports; but not likely because of the Fitch downgrade.
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