🧭 The Weekly Scoop

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Here’s what you need to know this week.…

There was more emotion than data this week (until this morning’s jobs report). The economy seems to be at a turning point, and investors don’t know how to act. Most data about business activity seems to point to a pretty OK economy right now, but we’re reaching the point at which no one knows whether the slowdown becomes the recession.

Employment seems to be the main thing holding up well. Unemployment and layoffs have stayed very low, but some mixed indicators have pointed to slowing hiring. Inflation is still trending in the right direction, but not yet back to normal, and wages aren’t catching up to living costs. That’s why you have hundreds of thousands of workers on strike across several industries right now. Most Americans have used up their extra savings and started turning to credit cards while student loan payments just resumed for tens of millions of people. Interest rates keep rising, making mortgages and most other debt unaffordable, stalling the housing market.

Investors almost want the economy to do worse, because that might mean policymakers will start shifting back from restrictive policies to more supportive or stimulative policies. Those shifts won’t necessarily help the economy right away, but they would likely stimulate the market that works in anticipation.

The economy has been far more resilient that people expected. But, the excess strength of savings, jobs, and spending power have dwindled. There’s not that much left to “slow” before its starts to contract. The main hope is that consumers can hang on a little more until the costs of living get a little more manageable (wages catch up or inflation gets back to a less conspicuous level) and policymakers give the economy a break from high interest rates.

🐂 Reasons to be optimistic:

• Employment is still stronger than anyone expected it to be right now. The Labor Department reported the public and private sectors added 336,000 more jobs in September, nearly double what economists expected. They also revised their July and August reports upward by 119,000 jobs. The unemployment rate stayed at 3.8%, which is still close to 50-year lows.

• Layoff rates are still very low. The Labor Department reported initial unemployment claims rose slightly last week to 207,000 but remained lower than economists expected. A separate report from outplacement firm Challenger, Gray & Christmas indicated a 37% drop in planned layoffs in September. Firms are reluctant to let go of employees amidst a competitive job market. Unemployment is historically low, and there are still more than 1.5 available jobs for every unemployed person.

• The government is still running as usual. Congress passed a Continuing Resolution [🤓] bill to prevent a government shutdown just hours before the September 30th midnight deadline, extending government funding through November 17. It includes natural disaster aid and measures to keep the Federal Aviation Administration operational but does not provide additional funding for things like border security or aid to Ukraine. The government might still shut down if Congress can’t agree on a spending plan by November 17th. Given the House just fired its Speaker of the House for the first time ever, fiscal negotiations don’t look optimistic.

• The US manufacturing sector might be making a comeback. Both production and employment increased in September, according to the Institute for Supply Management. The manufacturing Purchasing Managers' Index rose to 49.0, the highest figure since November 2022. Despite the improvement, it marked the 11th straight month of manufacturing contraction, the longest stretch since the 2007-2009 Great Recession. Rising fuel and supply costs remain concerns across multiple industries, but ISM’s prices index significantly improved last month.

• There are still plenty of available jobs. The Bureau of Labor Statistics reported a surge in job openings in August to 9.61 million, surprising economists. While many industries kept hiring, three-quarters of the increase came from a hiring burst in the professional and business services sector. Job openings had been trending lower for months but remain well above the pre-pandemic levels of around 7 million. There are still more than 1.5 job openings for every unemployed worker, so policymakers have been trying to slow business activity to get things back into balance and reduce inflation.

• Businesses opted to invest more in themselves in August. Orders for durable goods, which includes anything from computers to trucks that last more than three years, rose by 0.2%. Companies invested much more than economists expected in machinery, electrical equipment, and appliances. The increase in business investment prompted some economists to increase their US economic growth estimates for the third quarter. Despite ongoing challenges in manufacturing, the report suggests that higher borrowing costs haven’t yet discouraged business leaders.

• This holiday season could be full of big discounts. Adobe Analytics expects a 5% surge in online sales this quarter as retailers prepare to offer significant discounts, with markdowns peaking at 35% in categories such as toys, sporting goods, and furniture. The holiday season is crucial for retailers, often accounting for nearly a third of their annual revenue. With Amazon hosting its Prime Day sale in October, holiday shopping is expected to start earlier this year. Credit cards and buy-now-pay-later services entice shoppers to stretch their budgets but try not to let yourself spend beyond your means.

• Businesses ramped up exports to other countries in August, a good sign for the economy. The Commerce Department reported the US trade deficit (exports minus imports) narrowed to the lowest level in nearly three years. US businesses shipped record capital goods overseas while buying much less from other countries. Trade didn’t have much net impact in the second quarter, but it might have boosted the economy in the third quarter.

🐻 Reasons to be pessimistic:

• Consumer spending keeps slowing as living costs keep rising. The Commerce Department reported personal consumption expenditures increased by 0.4% in August, far slower than the 0.9% in July. Higher prices on gas and groceries have strained budgets. Policymakers’ preferred inflation gauge rose 0.4% in August but only 0.1% when excluding food and energy costs. The Personal Consumption Expenditures Price Index (PCE) shows that inflation for most goods and services is closer to normal levels, but food and gas prices remain critical challenges.

• There are some signs of companies not hiring as much. Payroll provider ADP reported just 89,000 jobs added in September, less than half as many as in August and below economists' estimates. Most of the gains came from the economy's service sector, with leisure and hospitality jobs leading the way. Additionally, annual wage growth slowed to 5.9%, marking the 12th consecutive monthly decline. This signals a potential strain on American workers, who are not seeing their wages increase enough to keep up with the rising cost of living. This is in stark contrast to the Labor Department, but the trends are more important to watch than the actual number.

• Business activity is slowing but still decent. The Institute for Supply Management reported a drop in its services sector activity index to a nine-month low in August. Activity in the services sector, which powers most of the economy, is still growing but at a much slower pace. The manufacturing sector, though, has been shrinking for almost a year. It’s a much smaller portion of the economy. These signs indicate that Americans have preferred to spend their money on experiences rather than goods.

• It keeps getting more expensive to borrow. The 10-year US Treasury Bond rate, the most prominent benchmark for borrowing costs, reached 4.8% this week, the highest rate in over 16 years. That’s the rate the US government pays to borrow money for ten years. Since the US government is considered a risk-free borrower, everyone else’s borrowing costs are higher than that. These higher rates have complicated government budgeting decisions since it’s not as cheap to borrow when Congress goes over budget. It’s also making mortgages extremely unaffordable.

• Hundreds of thousands nationwide have been on strike, demanding better pay and working conditions. Over 25,000 autoworkers have stopped working across General Motors, Ford, and Stellantis assembly lines. The autoworker union is prepared to ramp up to 150,000 on strike as contract negotiations drag on. Roughly 60,000 hospitality workers have authorized a strike in Las Vegas. Over 75,000 healthcare workers went on strike at Kaiser Permanente hospitals and medical centers across five states this week. The 160,000-strong actors’ union is still on strike in Hollywood, though the writers union finally reached a deal after 150 days. That’s not even all of them.

America’s biggest conglomerates are facing more scrutiny and pushback against their growing power and influence. Regulators have escalated investigations and lawsuits against Amazon, Microsoft, Google, Meta, Disney, and more, attempting to demonstrate the negative impacts of their market power on consumers. Meanwhile, hundreds of thousands of workers from automotive, hospitality, healthcare, and entertainment sectors this week have revolted against these massive companies demanding fair pay.

The average person is working harder for less real pay, while executive compensation has skyrocketed. Over the last twenty-five years, CEO pay has grown by 1,322% while the typical worker's earnings have risen only 18%, both adjusted for inflation. Across all employees of the 1,000 largest US companies, less than half earn a wage that can sustain a family. That’s 15% of the working population not able to cover basic needs while working full-time jobs at multi-billion dollar companies.

Click to dig in & vote your reaction, see how others feel

• Ford clashes with its autoworkers union

• H&R Block accused of organized crime data sharing with Google & Meta

• Amazon used secret programs to drive up prices [🤓]

• Alphabet faces off with Microsoft in biggest antitrust case of the century [🤓]

• Disney sued for having too much power across content and streaming

(These links only work for 24 hours while the story is live)

🏡 For your home

7.5% = Average 30-year mortgage rate

That’s up from 7.3% a month ago and up from 6.8% a year ago. _{Mortgage Bankers Association, 9/29/23}

$407,100 = Median existing home sales price

That’s up from $406K the month before and up from $392K a year ago. _{National Association of Realtors, 8/31/23}

💼 For your work

207,000 = Layoffs Last Week (Initial jobless claims)

That’s up from 204,000 the week before and in line with pre-covid averages. _{Labor Dept., 9/29/23}

336,000 = New jobs added in September

That’s up from 227,000 in August and above pre-covid averages. _{Labor Dept., 9/30/23}

3.8% = Unemployment rate in September

That’s the same as August and still near the lowest rate in 50+ years. _{Labor Dept., 9/30/23}

9.6M = Available jobs in August

That’s up from 8.9M in July and well above pre-covid averages of ~7M. _{Labor Dept., 8/31/23}

Who’s hiring: Professional and Business Services, Leisure and Hospitality

Who’s firing: Arts, Entertainment, and Recreation

👜 For your wallet

3.7% = Cost of living increase (1-Year Inflation)

Living costs are 0.6% higher than the month before. Normal inflation sees prices rise by 0% to 0.2% per month, 1-2% per year. _{Bureau of Labor Statistics, 8/31/23}

3.0% = Groceries cost increase (1-Year inflation)

Groceries are 0.2% more expensive than they were a month ago. _{Bureau of Labor Statistics, 8/31/23}

$3.77 = National Average Gas Price/Gallon

That’s down from $3.81 a month ago and down from $3.83 a year ago. _{AAA., 10/5/23}

💰For your savings

0.45% = Average interest banks pay on a savings account_{, FDIC, 9/18/23}

5.50% = Interest rate banks earn on their savings accounts_{, Federal Reserve, 7/26/23}

The Federal Reserve has raised baseline interest rates from 0% to 5.50% in the past year. Make sure your bank is paying you higher interest on your savings.

💸For your investments

-2% = This past week’s change in the US Stock Market

-6% past month, +14% past year, and +46% over 5 years. _{S&P 500 Index, 10/5/23}

4.72% = The yield on the 10-Year US Treasury Bond

Yields are +3% this past week, +11% this past month, and +26% over the past year. _{US Government Bonds, 10/5/23}

+1% = This past week’s price change for Bitcoin

+6% in the past month and +36% in the past year. _{Coinbase, 10/5/23}

-2% = This past week’s price change for Ethereum

-1% in the past month and +19% in the past year. _{Coinbase, 10/5/23}

A US government shutdown occurs when Congress can't agree on a budget for the upcoming fiscal year. It's a political standoff, often due to disagreements on where money should be spent, causing disruptions until a compromise is reached. When this happens, many federal agencies and services stop operating due to lack of funding. Essential services, like the military and air traffic control, keep running, but others, like national parks, might close. Government support services likely stay operating but may experience delays or disruptions. The longest shutdown was for 34 days in 2018.

When the US government shuts down, federal employees are placed on unpaid leave (furloughed), but they receive back pay for the time they were furloughed once the government reopens. Federal contractors, though, do not automatically receive compensation. Their pay depends on their contracts' terms, and they may not recoup lost wages even after the government reopens.

When Congress needs a last-minute extension for their main assignment, they pass a Continuing Resolution. A Continuing Resolution (CR) is a temporary funding measure used by the US Congress to keep the federal government running when the annual budget hasn't been finalized by the start of the fiscal year (October 1).

Instead of passing a full budget, Congress approves a CR to provide funds for a short period, allowing more time to negotiate and finalize the budget details. It typically maintains the previous year's funding levels for agencies and programs.

Federal antitrust laws are designed to increase economic competition by limiting the market power of any company or small group of companies (aka a trust).

The Federal Trade Commission, and sometimes the Justice Department, are tasked with monitoring pricing practices and collusion between significant corporations to break up monopolies and other anti-competitive power structures.

Regulators review all corporate mergers and acquisitions to ensure newly-formed companies won't limit competition in a way that harms consumers with less choice or higher prices.