Hello, this is Claire Ellerhorst, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices were mostly lower in volatile trading last week as investors assessed COVID-19 concerns, economic data and comments from Federal Reserve Chair Jerome Powell. The benchmark S&P 500 Index fell 1.2% in total return for the week, while the tech heavy Nasdaq Composite dropped 2.6% and the blue-chip Dow Jones Industrial Average fell 0.8%. The 10-year U.S. Treasury yield fell 12 basis points to end the week at 1.35%, as markets took a risk-off tone. International equities also fell, and the U.S. dollar strengthened versus major peers.
Stocks were whipsawed last week as investors tried to decipher the economic risk posed by the omicron variant. Omicron has now appeared in the U.S. and was reported in at least seven states as of Friday. Federal Reserve Chair Jerome Powell says the variant presents a risk for inflation and the labor market, and that it may lead to intensified supply chain disruptions. Powell expects policymakers will discuss the possibility of accelerating the tapering of asset purchases at the Fed’s next meeting and that it may conclude "a few months sooner" than previously anticipated. Notably, Powell also suggested it may be time to stop using the word "transitory" to describe inflation. Although the Fed is backing away from using that descriptor, the central bank still largely assumes that price increases will moderate over time. Market participants took Powell’s comments to be relatively more hawkish than anticipated.
U.S. government officials reached an agreement on a short-term government funding bill late last week to prevent a government shutdown. The measure will keep the government funded through February 18 and allows Congressional leaders more time to come to an agreement on the debt ceiling and the Build Back Better Act.
In economic news, the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index, or PMI, rose to 61.1 in November, roughly in line with economists’ expectations. The measure was boosted by an acceleration in new orders and increased production and hiring at factories. The Services PMI rose to a record high, signaling strength despite a pickup in COVID-19 infections.
The monthly employment report from the Bureau of Labor Statistics was less encouraging. U.S. employers added 210,000 jobs to payrolls in November, well below consensus for an addition of 530,000 and the lowest reading since December 2020. However, wage growth unexpectedly slowed and the unemployment rate fell by more than forecast to 4.2% last month.
In the week ahead, all eyes will be on Friday’s consumer price index report, a key measure of U.S. inflation. The economic calendar also includes the trade balance and the Job Openings and Labor Turnover Survey, or JOLTS report.
As always, we’ll be watching and reporting back to you. Thank you.
