The latest few months highlight the trend of the United States resurgence suffering. Key data revealed mixed results throughout the economy. Over the past month, the U.S. still confronts COVID-19, along with vaccine distribution. Meanwhile, mass resignations and rising inflation plague sectors across the country. Overall, the United States faces a very unique situation heading into the fall.
COVID-19 Dampens United States Resurgence via Job Growth
Last month’s closely watched employment report suggested that COVID_19 dampened job creation, affecting the United States resurgence. Analysts particularly saw strong evidence for this in the already-damaged leisure and hospitality sectors.
Against a consensus forecast of 720,000, the economy added just 235,000 jobs in August 2021. Thus, job growth plummeted from gains of over one million in July 2021.
However, there were some offsetting factors. Analysts added revisions, contributing 134,000 jobs to the results for prior months. In addition, education jobs sharply underperformed expectations. However, many assign this to distortions in the seasonal adjustment caused by the pandemic.
Typically, analysts adjust job gains to reflect historical seasonal trends. For instance, the start of the school year just began. Similarly, many of the usual hiring and firing patterns changed during the pandemic.
The unemployment rate declined from 5.4% to 5.2%. While the unemployment rate matched expectations, it also hit the lowest level since prior to the pandemic. Average hourly earnings rose 0.6% from July, well above the consensus of 0.3%. Analysts refer to average hourly earnings as an indicator for wage growth. They were 4.3% higher than a year ago, up from 4.1% last month.
To summarize, job gains fell short partly due to seasonal issues related to the pandemic. On the other hand, wage gains rose. Overall, the latest report had little net effect on mortgage rates.
JOLTS Report Shows Strong Job Openings
The JOLTS report measures job openings and labor turnover rates. Subsequently, the latest data indicated that the labor market is extremely tight. At the end of July 2021, job openings unexpectedly surged to 10.9 million, shattering the former record high.
Openings jumped well over three million higher than they were in January 2020 prior to the pandemic. A high level of job openings reflects a strong labor market, as companies struggle to hire enough workers with the necessary skills. Therefore, the latest JOLTS report indicates opportunity for the United States resurgence amidst COVID-19.
The ‘Great Resignation’ Affects the Job Market
A large number of employees by historical standards willingly left their jobs in July 2021. Analysts view this as a sign of labor market strength as well. Generally, people quit only if they expect that they can find better jobs.
According to Business Insider, this trend is not likely to stop anytime soon, either. Close to three-quarters of American workers actively considered quitting their job. This trend flooded the hospitality industry, which currently faces a country-wide labor shortage.
Dubbed ‘The Great Resignation’—workers now reevaluate their lives thanks to many factors including the rise of work-from-home accessibility and the ongoing coronavirus pandemic. These factors ultimately collide head-on with the United States resurgence.
“The pandemic created a sudden, wide-scale opportunity for workers in all industries to take a step back from their daily work, reevaluate their employment situation, and consider other career options moving forward,” said Kevin Harrington, CEO of Joblist, to Business Insider. “A significant percentage are clearly taking advantage. Although the pandemic initiated this reckoning, the Great Resignation appears to be a trend that is here to stay.”
According to Joblist, the two main reasons so many Americans are quitting (or considering quitting their jobs) are:
- To seek higher pay
- To find a new career path
The availability of job openings and the demand for labor created a perfect situation for many to seek out new, higher paying opportunities.
Government COVID Vaccine Mandates Stir Pot on United States Resurgence
Local and federal-level government mandates on vaccines began to go into effect. The trend shows up in full force in industries where vaccines are often required such as healthcare and education. A slew of resignations and firings occurred in these industries. Thus, new job opportunities sprouted overnight. However, this still adds to the overwhelming uncertainty permeating throughout the American economy.
Many cities—such as New York, San Francisco, and Los Angeles—instituted harsher vaccine regulations. As an example, many bars, restaurants, and clubs require proof of vaccine (or proof of a negative test) before entering the facility. Because it’s early, analysts still wait to see the long-term effects of the policy changes on nightlife, entertainment, and hospitality.
National Service Index Falls from Record Highs
Optimistically, the Institute of Supply Management (ISM) revealed strong results in its latest reporting. The national services index fell to 61.7, down from a record high, while the national manufacturing index came in at 59.9.
Levels above just 50 indicate that the sectors are expanding. Readings above 60 are rare. Of note, a large number of companies reported difficulties in hiring enough workers to keep up with growing demand.
In conclusion, this is fantastic news for the United States resurgence as both the service and manufacturing sectors illustrate economic expansion.
Inflation Rises to Consensus Amidst United States Resurgence
The Producer Price Index (PPI) indicates inflation for raw material costs for items. Producers implement these raw materials to create finished products.
In August 2021, PPI rose 0.7% from July. As a result, PPI nearly hit the consensus forecast. Having said that, PPI increased 8.3% higher than a year ago. In addition, PPI jumped up from an annual rate of increase of 7.8% last month. PPI reached the highest level since 2010.
Pandemic-induced supply chain disruptions pushed up prices for many items, impacting the United States resurgence.
Inflation Numbers Worry Investors Over “Safe Assets”
London-based economic researchers warn against an era of high inflation. They caution that inflation may result in “paltry” returns for investors of “safe” assets like treasury bonds.
“We envisage a future in the US in which inflation is significantly higher than it has been in the past decade, but still only moderately above target; economic growth remains healthy as supply constraints ease; and the Fed doesn’t press very hard on the brakes,” said John Higgins, Chief Markets Economist at Capital Economics.
United States Resurgence Sees Strong Consumer Spending
The United States saw stronger-than-expected consumer spending this past month. Concurrently, consumer spending outweighed the lower-than-expected inflation. Consumer spending drove mortgage rates higher, overall.
Consumer spending accounts for over two-thirds of U.S. economic activity. Therefore, retail sales data indicates growth.
In August 2021, retail sales surged 0.7% from July. This statistic rocketed far above the consensus for a decline of -0.8%. however, analysts revised July 2021 retail sales to be lower. In whole, retail sales rose an impressive 15% higher than a year ago.
Department stores and furniture sales witnessed particular. Meanwhile, auto sales came across as weak. Experts attribute weak auto sales to a lack of inventory resulting from chip shortages.
Investors worry about COVID-19’s impact on consumer behavior. The latest report suggests that the American economy has plenty of firepower left in the tank.
Shortages and Supply Chain Disruptions Threaten Growth
European and U.S. gas prices soared recently with some locations seeing gas up more than 350%. It’s not just oil that’s seeing the impact of supply shortages and supply chain disruptions. And it’s not just a problem for oil and electronics. Many experts are predicting that this supply chain shortage could impact the crucial holiday shopping season that accounts for a large percentage of yearly sales for many of the world’s biggest retailers.
The effects of this shortage have been evident in many industries including cars, computers, and more who rely on parts that have become scarce around the world. Many large retailers like Amazon are looking to get ahead of the problem by introducing pre-holiday shopping even sooner than Black Friday to help avoid bottlenecks.
Consumer Price Index Higher Than Year Ago
The Consumer Price Index (CPI) is a closely watched inflation indicator that looks at price changes for a broad range of goods and services. Core CPI excludes the volatile food and energy components and provides a clearer picture of the longer-term trend.
In August, Core CPI was 4.0% higher than a year ago, which was much less than expected, and down from an annual rate of increase of 4.5% in June, a level not seen since 1991.
Fed officials and economists are divided about whether the recent spike in the annual inflation rate is mostly due to temporary factors caused by the pandemic or will last for a long time, and this report supports the former view.
Home Sales Fall; Median Home Prices Rising
In August, existing home sales fell 2% from July, matching expectations. The median existing-home price ($356,700) was 15% higher than last year at this time. Inventory levels were down 13% from a year ago, at just a 2.6-month supply nationally, well below the 6-month supply which is considered a healthy balance between buyers and sellers.
Given the critical need for more homes in many areas, investors have been closely watching the monthly reports on housing starts, and the latest data contained mixed news. In August, overall housing starts rose 4% from July, which was well above the consensus forecast.
However, the strength was seen entirely in multi-family units, while single-family starts declined from July. Rising prices and shortages for land, materials, and skilled labor remained obstacles to a faster pace of construction.
European Central Bank Reduces Bond Purchases
As expected, the European Central Bank (ECB) announced that it will reduce its bond purchases, but it did not specify by exactly how much.
Instead, the meeting statement said that it will proceed with a “moderately lower pace” of net asset purchases over the next three months.
While the Fed has not yet begun to taper its bond buying, it is expected to do so before the end of the year, capping off the United States resurgence.
Fed Meeting Turns Up Negative for Bonds
Investors were focused on the recent Fed meeting, though there were no significant surprises, the reaction was negative for bonds, and mortgage rates ended the week higher.
To help ease the impact of the pandemic, the Fed put in place extraordinary monetary policy measures including bond purchases and rate cuts last year. With the solid recovery of the economy, officials have recently been saying that it is almost time to begin to remove some of this stimulus to reduce the risk of rising inflation.
Against this backdrop, investors primarily were looking for guidance in two areas. First, when will the Fed taper its massive bond purchase program?
Based on the meeting, investors now expect that it will begin to scale back (taper) its bond buying in either November or December of this year. According to the meeting statement, “a moderation in the pace of asset purchases may soon be warranted.”
The second question is when the Fed will begin to raise the federal funds rate, which would be a more significant policy change than tapering. Of the eighteen officials, nine currently think that the first rate hike will take place in 2022 and nine in 2023. This is a slightly faster timeline on average than in the prior set of projections.
Looking Towards the United States Resurgence
Looking towards what’s next for the United States resurgence, investors closely watch COVID-19 case counts around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy. Additionally, updates from the government on COVID regulations could impact the economy significantly in coming weeks.
Investors are also closely watching the developing supply chain shortage and monitoring it closely before making estimates on how it could affect the upcoming shopping seasons, job gains, and overall economy heading into Winter.
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