Dow dropped 200, decliners over advancers a massive 7-1 & NAZ retreated 221. The MLP index declined 4+ to the 213s & the REIT index was off 3+ to 410. Junk bond funds saw more selling & Treasuries were very heavily sold sent yields soaring (more below). Oil was off another 2+ to the 87s & gold sank 24 to 1701.
AMJ (Alerian MLP index tracking fund)
The number of Americans filing for unemployment benefits unexpectedly dropped to a 2-month low last week, a sign that employers are continuing to hold on to workers in a historically tight labor market. The Labor Dept reported that applications for last week fell to 232K from the downwardly revised 237K recorded a week earlier. That is still above the 2019 pre-pandemic average of 218K claims. Continuing claims, or the number of Americans who are consecutively receiving unemployment aid rose to 1.4M, up by 26K from the previous week's revised level. One year ago, nearly 12.2M Americans were receiving unemployment benefits. For months, the labor market has remained one of the few bright spots in the economy, with the Jul jobs report showing that the unemployment rate dropped to 3.5% for the first time since the beginning of the COVID-19 pandemic. However, there are signs that the labor market is starting to weaken, with a plethora of companies announcing hiring freezes or layoffs in recent weeks. The data precedes the release of the more closely watched Aug jobs report tomorrow, which is expected to show that employers hired 300K workers following a gain of 528K in Jul. The unemployment rate is expected to hold steady at 3.5%, the lowest since the pandemic began 2 years ago.
Jobless claims unexpectedly fall to lowest since June
The 2-year Treasury yield hit a nearly 15-year high on after ADP data the day before showed a significant slowdown in private payroll growth & US. equities continued a sell-off. The yield on the short-term note hit a high of 3.516%, the highest level since 2007 yesterday & was last trading about 5 basis points higher at 3.501%. Meanwhile, the 10-year Treasury yield jumped 11 basis points to 3.248% & the yield on the 30-year Treasury bond rose 11 basis points to 3.365%. Yields move inversely to prices & a basis point is equal to 0.01%. Yesterday, a jobs report from payroll processing company ADP showed US private payrolls grew by 132K in Aug, a deceleration from 268K in Jul. ADP's chief economist, Nela Richardson, said it could show the US at an inflection point, moving from “super-charged job gains to something more normal.” Stock market averages have seen losses in all 4 sessions since Powell's speech Fri & had their worst Aug in 7 years. Gold prices have fallen to a 6-week low on a stronger $.
While some companies have slowed the pace of hiring due to concerns about an economic slowdown, the demand from small businesses for new workers has not yet shown signs of declining, Paychex CEO Marty Mucci said. “We’re still not really seeing any strong recessionary measures here for small business,” Mucci said. Hiring at US small businesses with fewer than 50 employees has slowed for 5 straight months, according to data from Paychex & IHS Markit, but Mucci said that has more to do with a lack of applicants than a reflection of small businesses pulling back. “For small businesses, the toughest thing is they have the demand, and they have the need for workers — they just have a little bit harder time finding it,” he added. That is counter to what is happening at some larger companies. In Aug, private payrolls grew by 132K, a drop from the 268K gain seen in Jul, according to ADP’s monthly payroll report. Mucci said that there are small businesses that are feeling the “inflationary pressure of wages.” Hourly earnings on average were $30.71 in Aug, up $1.51 from the same month last year, according to Paychex. Hourly earnings were up 5.18 % in the month, matching a record set in May dating back to 2011. The difficulty of both finding workers & having to pay higher wages could lead to a continued slowing of hiring activity, Mucci said, adding that “both of these things are going to slow [hiring] down a bit.”
Small businesses are still desperate for workers even as other companies slow hiring
Dow Jones Industrials
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