After a very rough beginning to September that say the major averages suffer significant losses. This week brought a major rally with the S&P 500 up 218 points or 4.03%, the NASDAQ jumped 993 points or 5.95%, while the DOW gained 1,049 points or 2.6%. The market taketh away and the market giveth, leaving investors about even after two-weeks, Friday the thirteenth and all.
Data from Trading Economics showed a huge $24.45 billion jump in consumer credit in July, almost double expectations, driven by substantial increases in both revolving and non-revolving debt. Revolving credit, which includes credit card balances, climbed by $10.6 billion, the biggest jump in five months. Meanwhile, non-revolving credit, covering loans for vehicles and education, surged by $14.8 billion. Hard to get a recession with numbers like that.
The August payrolls data confirmed that the July report was muddied by inclement weather. Improvement in the pace of job creation in construction and leisure/hospitality illustrating the point. Moreover, a reversal in temporary layoffs, a major driver behind July’s rise in the jobless rate, further supports the view of no rapid deterioration in the labor market.
Nevertheless, the magnitude of the rebound was smaller than projected, consistent with a narrative from the recent series of disappointing data that “the cooling in labor market conditions is unmistakable,” to use Fed Chair Powell’s words. The flow of workers from employment to unemployment picked up, part-time employment for economic reasons increased, and the number of people remaining unemployed also rose.
Inflation data also continues to cool with the annualized CPI or Consumer Price Index slipping a larger than expected .4% to 2.5% in August. This was followed a day later by the wholesale price measuring PPI or Producer Price Index as it fell .4% to 1.7% annualized in August. So more good news on the inflation front.
While the Chicken Little crowd continues to run around screaming recession the Consumer Credit, employment data and a number of other factors suggest otherwise. Thanks to economist Justin Wolfers for the chart.
In fact, the Atlanta Fed raised its GDPNow estimate September 9th by .4% to 2.5% for the 3rd quarter. The latest consensus on interest rates following the week’s positive reports is for a 25 basis point, or ¼% cut this month and another 50 basis points or ½% in cuts by the end of the year. While there are always things to worry about with respect to the economy, business cycle and earnings. The data continues to show things progressing quite well.
Unfortunately, the same can’t be said for Social Security as the latest trustees report continues to follow what is now a well established trend of deficits, with the lates being 63 trillion in unfunded liabilities. The report looked at two things: how much money will be missing indefinitely and how much will be missing in the next 75 years. The report determined that there will be a permanent $62.8 trillion deficit and about a $23 trillion shortage for the next 75 years.
Officials explained that these numbers show how much less money they will have after the money saved up in trust funds runs out. “The annual shortfalls after trust fund reserve depletion rise slowly and reflect increases in life expectancy,” the report reads. “The summarized shortfalls over the infinite horizon, as percentages of taxable payroll and GDP, are larger than the shortfalls for the 75-year period.” OASDI trustees noted that the shortfall could be eliminated if the combined payroll tax rate was raised to “about 17.0 percent” or if there was a “permanent reduction in benefits for all current and future beneficiaries by about 26.5 percent.” Hardly positive but not surprising. Given that our Congress Critters don’t have to stoop to collecting Social Security and Medicare, like your average American does they have little incentive to fix it, preferring instead to squander trillions on endless stupid forever wars.
Best, Caleb Lawrence