Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
U.S. stocks declined last week following Fitch’s downgrade of the U.S. credit rating to AA+ from AAA, citing "expected fiscal deterioration" over the next three years. This sent the yield on the 10-year Treasury higher by almost 20 basis point, finishing the week at 4.18 percent. The last time U.S. debt was downgraded was back in 2011, by Standard & Poor’s.
The July employment report showed that the U.S. economy continues to create new jobs, boosting hopes that the Fed may be able to tame inflation without creating a spike in unemployment, otherwise known as a soft landing. U.S. employers added 187,000 jobs, slightly below the 3-month average of 217,000. Health care, hospitality, and construction were among the industries adding jobs in July, while factories and transportation saw modest cuts.
The unemployment rate dipped to 3.5 percent, down from 3.6 percent the previous month, just a bit above the 50-year low. However, average wages in July were up 4.4 percent from a year ago, finally outpacing the 3 percent increase we saw in prices back in June.
In other positive news, regarding the health of the U.S. jobs market, the share of people in their prime working years, ages 25-54, who are in the labor force is growing, reaching a two-decade high in June.
Looking towards the U.S. political arena, last week former President Donald Trump made an appearance in a Washington, D.C., courtroom to answer charges that he used "unlawful means" in an attempt to subvert the results of the 2020 presidential election. He pleaded not guilty to the charges.
We have a light economic calendar this week, which is typical the week following the jobs report. On Tuesday we get Trade Balance and Wholesale Inventories. Then we finish up the week with two popular gauges of inflation, the CPI, or Consumer Price Index and the PPI, or Producer’s Price Index, coming out on Thursday and Friday, respectively. The inflation data will certainly influence what the central bank decides to do at the next Fed meeting in September. The FOMC had raised the short-term fed funds rate over 5 percent in little over a year, raising rates in 11 of its last 12 meetings.
As always, we will be watching and reporting back to you next week. Thank you.