A busy week. Even though this past week was shortened by the holiday, it was nonetheless pretty busy. On Tuesday, it looked like things were getting off to a slow start. Stocks were mixed, despite the fact that the Manufacturing Report on Business, compiled by the Institute for Supply Management, showed an improvement in manufacturing conditions in the United States in August. The overall Purchasing Managers’ Index increased from 55.4 to 55.7, indicating manufacturing activity expanded at a faster rate than in July. A substantial increase in the new orders component, from 58.3 to 63.2, led the gain. That’s the highest reading in more than 2 years. Any reading above 50 indicates growth.
So why the drag? Still, Syria was dragging the markets, thanks to a lot of uncertainty about what’s going to happen there. Also, the markets are a bit unsure about what good news means. Does it mean the economy is really getting better, or does it mean the Fed is more likely to reduce its $85 billion monthly bond-buying program, cutting off the cash that’s fueling this market rise? San Francisco Fed President John Williams said this past week, for example, the central bank should start to trim its bond-buying program later this year and end it by mid-2014.
More good than bad. Even so, it did look like we had more good news than bad over the past week. The Fed’s Beige Book, a region-by-region assessment of the economy, reported the U.S. economy expanded at a “modest to moderate” pace in most of the country between early July and late August. That’s not great, but it is an improvement over reports of the recent past. News of a boom in the auto industry also cheered the markets. Ford’s August sales rose 12 percent over a year ago. It was the automaker’s best month since August 2006. GM did even better, posting sales that jumped almost 15 percent. Toyota surged nearly 23 percent.
Employment still weak. But the employment picture doesn’t seem to be getting better. Weekly initial jobless claims fell more than expected to a seasonally adjusted 323,000, a number that generally indicates job growth. And the Labor Department’s monthly report, released this morning, said the economy had created more jobs, about 170,000. But that was a bit less than expected, and the government revised June and July numbers downward, so we don’t know how much confidence we can have in the August number. Will those job gains evaporate, too? The bottom line is that the unemployment rate remains essentially unchanged. (It was reported as down one-tenth of a percent, but go out another decimal point, and you’ll see the change was less than that.) So that’s not good news for the millions of Americans unemployed or underemployed, or for the economy generally.
Drilling down. I should say, though, that this month’s employment data have a few interesting tidbits. For example, we’ve been hearing that a college degree is overrated. However, the unemployment rate for college-educated adults over the age of 25 is a minuscule 3.5 percent. That’s very nearly full employment. African-American unemployment (16 and older) is 13 percent. That’s more than double Asian unemployment (5 percent) and significantly above even Hispanic unemployment (9.3 percent). Worse still, African-American unemployment actually went up .4 percent in the past month.
The week ahead. It will actually be a somewhat quieter week this week than last, in terms of economic reports. But we will get government reports on producer prices and retail sales, and those reports can move the markets. But I think all eyes this week will be on Congress. Not only will lawmakers be dealing with Syria, but we’re now within weeks of a new budget crisis. Will Congress increase the debt ceiling? What will the new continuing resolution that funds government look like? Are we looking at another sequester? And what about Obamacare? All these questions have huge implications for the markets and the economy, and Congress is integral to them all.