🧭 The Weekly Scoop

Hey friends, it’s Friday. You did it. Go do something fun, maybe get yourself a little treat.

Welcome to our 141 new subscribers this past week! Take a second and share the scoop!

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

September kicked off with a soft thump. So far, it’s been a little more of the same. The economy broadly is doing OK, with just the right mix of good and bad data to satisfy no one.

A return of inflation is looming. Next week’s inflation report on Wednesday will be critical. Energy costs have been climbing, and that pretty much affects everything. The price at the pump is one of the essential things that makes consumers aware of a pinch in our pockets. Falling gas prices were mostly why everyone felt less nervous about inflation this year.

One of the weirdest things investors and economists worry about is higher wages. Investors go nuts watching for “wage inflation” because, in theory, it is likely to have a multiplier effect on broader inflation. Because:

1. As we get more money, we spend more money. More money chasing the same amount of stuff pushes prices higher (as we’ve seen in the past few years).

2. Companies won’t let the higher payroll costs affect their profits, so they’ll raise prices for their goods and services, spurring more inflation.

So, while it sounds good to have more Americans earning higher wages, the system is designed to prevent it from happening too much. The labor market has been out of balance for the last few years. The economy was running too hot, and businesses needed more workers than the country could offer. Policymakers have been hyper-focused on slowing the economy to bring the supply and demand for workers back into balance. It’s not because they care about companies being unable to fill positions. They don’t want them to start hiking salaries too much to compete for the smaller talent pool. They want to prevent wage inflation.

Unfortunately, economic policy is not precise. The rate of change in wages doesn’t account for the relation of income to living costs, nor unique regional or social factors. Wages have started rising a little faster than living costs, but they are still so far behind for so many people. Lower-wage Americans are suffering right now. Working a full-time job at minimum wage does not come close to covering the most necessary living expenses anywhere in America.

So, as you watch the news, be prepared to watch investors worry about union workers negotiating higher salaries and layoff rates declining. Expect them to celebrate if wages stop rising as quickly and hiring slows down. Bad news is good news for the stock market right now until it turns into really bad news.

🐂 Reasons to be optimistic:

• Policymakers said the economy saw modest growth in July and August. The Federal Reserve’s Beige Book report indicated a slowdown in consumer spending on most things except travel as Americans use up the last of their excess savings. Manufacturing supply chains have cleared up. There’s a growing shortage of affordable housing. Banks are still lending at a decent pace and not seeing worrisome delinquencies yet.

• The services industry is doing much better than manufacturing as consumers cut back on buying stuff and focus their budgets on travel, dining, and experiences. The Institute for Supply Management reported a surprising surge in business activity across services in August, which comprise two-thirds of the economy. ISM reported a contraction in the manufacturing sector for the tenth straight month, though factory orders look to be bottoming.

• Fewer people got laid off last week. The Labor Department reported initial unemployment claims dropped for the fourth straight week to 216,000, the lowest level since February and in line with pre-pandemic averages. Unemployment is historically low, and there are still more than 1.5 available jobs for every unemployed person.

🐻 Reasons to be pessimistic:

• Hiring slowed in August as the economy returned to a normal job market. The Labor Department reported employers added 187,000 more jobs last month, particularly in healthcare, hospitality, and construction. The unemployment rate jumped to 3.8% - still historically low, but higher than the 3.5% in July. Policymakers like seeing the labor market loosening up. [🤓]

• Wages aren't rising very quickly anymore. The August employment report showed average hourly income rose only 0.2% in the month, up 4.3% in the past year. The tight labor market [🤓] has given workers negotiating power, and wages were just starting to rise more quickly than living costs. We'll determine how quickly living costs rose in August's inflation report on the 13th.

• Major oil export nations are cutting production to make oil more expensive. Saudi Arabia and Russia both announced extensions to their voluntary reductions in oil output, limiting the global supply further and pushing prices higher. Gas prices have been climbing in recent months, which could strain the economy further.

• Low-income Americans are struggling more than they have in years. Food insecurity has doubled in the past year for households using the government Supplemental Nutrition Assistance Program (SNAP). In August, 42% skipped meals, and more than half ate less because they couldn’t afford food. In just the past month, there have been significant increases in the number of program participants who took on debt, had utilities shut off, or missed rent payments.

• It’s getting more expensive to live in the suburbs. Apartment List reported suburban rent prices have climbed 26% since March 2020, more than eight percentage points faster than city rents. Rents in the suburbs have grown faster than their urban counterparts in 93% of the country. New York City rents can’t be beaten, though.

• Expensive mortgage rates have stalled the housing market. The Mortgage Bankers Association reported the number of mortgage filings to purchase a new home fell 2% last week, down 28% from a year ago and the lowest level in 27 years. The average 30-year mortgage sits near multi-decade highs at 7.21%. [🤓]

The labor movement seems to only be gaining steam this week. Strikes are active or imminent across the entertainment, hospitality, transportation, energy, and auto industries this week. Unions seem prepared to disrupt the economy to earn their fair share.

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

• Warner Bros profit hurt by landmark Hollywood strike

• General Motors illegally delays autoworker negotiations

• Chevron faces a disruptive strike 

• American Airlines flight attendants authorize a strike for better pay

• UPS driver applications surge after union gets massive pay bump

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

🏡 For your home

7.2% = Average 30-year mortgage rate

That’s up from 7.1% a month ago and up from 5.9% a year ago. _{Mortgage Bankers Association, 9/1/23}

$406,700 = Median existing home sales price

That’s down from $410K a month ago and up from $399K a year ago. _{National Association of Realtors, 7/31/23}

💼 For your work

216,000 = Layoffs Last Week (Initial jobless claims)

That’s down from 228,000 the week before and in line with pre-covid averages. _{Labor Dept., 9/1/23}

187,000 = New jobs added in August

That’s up from 157,000 in July and in line with pre-covid averages. _{Labor Dept., 8/31/23}

3.8% = Unemployment rate

That’s up from 3.5% in July and still near the lowest rate in 50+ years. _{Labor Dept., 8/31/23}

8.8M = Available jobs

That’s down from 9.2M in June and well above pre-covid averages of ~7M. _{Labor Dept., 7/31/23}

Who’s hiring: Information technology and transportation

Who’s firing: Healthcare and business services

👜 For your wallet

3.2% = Cost of living increase (1-Year Inflation)

Living costs are 0.2% 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, 7/31/23}

3.6% = Groceries cost increase (1-Year inflation)

Groceries are 0.3% more expensive than they were a month ago. _{Bureau of Labor Statistics, 7/31/23}

$3.80 = National Average Gas Price/Gallon

That’s down from $3.83 a month ago and up from $3.76 a year ago. _{AAA., 9/7/23}

💰For your savings

0.43% = Average interest banks pay on a savings account_{, FDIC, 8/21/23}

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

-1% past month, +14% past year, and +54% over 5 years. _{S&P 500 Index, 9/7/23}

4.25% = The yield on the 10-Year US Treasury Bond

Yields are +3% this past week, +6% this past month, and +30% over the past year. _{US Government Bonds, 9/7/23}

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

-10% in the past month and +37% in the past year. _{Coinbase, 9/7/23}

0% = This past week’s price change for Ethereum

-10% in the past month and +1% in the past year. _{Coinbase, 9/7/23}

Mortgage rates can be fixed or floating. A fixed-rate means you've locked in that percentage of the loan you need to pay back in interest each month, and it won't increase. A floating rate is usually tied to the movement of a benchmark interest rate. So as broader interest rates rise, your rate increases, and you pay more each month.

Whether fixed or floating, banks determine their mortgage rates by taking a baseline low-risk lending rate like US Treasury bonds, then marking it up based on how risky you are as a borrower. So banks say, "OK, we can lend to the US Government (considered no default risk) for ten years at 4% interest. You're more likely to default than the US Government, so you will need to pay us higher interest to make it worth the risk, maybe 7%." As baseline rates rise, your rates will rise.

Economists and financial analysts often refer to certain markets or policies as tight or loose, indicating whether something is restrictive to normal function.

You might hear that the labor market has been tight, referring to the demand for employees far exceeding the amount of available workers. That imbalance has restricted economic growth by not providing businesses with the resources they need and spurred inflation by making those limited resources more expensive (higher wages). As business activity slows, and companies reduce their hiring plans, the demand for workers will come closer into balance with the supply. Economists will also use temperature adjectives to qualify the scale of imbalance. A tight labor market could be too hot and need to cool or loosen.