In The Know – August 23, 2024

At Financial Issues, we help you stay in the know about the financial issues of the day. We keep you abreast of what’s happening in the economy and the markets, helping you understand how these developments impact your personal financial situation. As we come to the end of the week of August 23, 2024, here are a few takeaways:

The markets have been in positive territory so far, and it looks like they will close on a positive note, assuming today’s trends hold, albeit just slightly. This suggests a solidifying V-bottom recovery from the very brief pullback we observed earlier. The biggest news this week, in my opinion, was the benchmark revisions to the non-farm payrolls numbers, which seemed to be largely overlooked by most. Suddenly, 818,000 jobs that the Biden administration celebrated as created over the past year ending March 2024 were revised away. The expectation was that the revision would fall somewhere between a wide range of 350,000 to 1 million jobs. And we won’t even get the final revision for this number until February 2025. I believe it could be much worse.

Every first week of the month, we get the non-farm payrolls number. This figure is calculated by the Bureau of Labor Statistics (BLS), a government organization that conducts surveys of businesses and households to determine how many jobs were created. They also include estimates in their calculations regarding how many small businesses are being created or filing for bankruptcy. This is called the birth-death model, which has faced a lot of criticism. To find a worse revision than what we just saw, you’d have to look back to 2009. And if you recall, that was during the Great Recession, the financial crisis. Instead of creating an average of 250,000 jobs per month, we were actually creating around 185,000, assuming that number doesn’t get revised even more.

There has been some discussion about how counting immigrants has factored into this significant revision. I was expecting a bigger reaction in the market and among economists, but there wasn’t much of one. The consensus seemed to be that this provided more justification for the Federal Reserve to start cutting rates sooner rather than later.

President Trump, however, had a very extreme take on this, which he shared via Truth Social. He stated:

“MASSIVE SCANDAL! The Biden-Harris administration has been caught fraudulently manipulating job statistics to hide the true extent of the economic ruin they’ve inflicted upon America. New data from the Bureau of Labor Statistics shows the administration padded the numbers with an extra 818,000 jobs that do not exist and never did. The real numbers are much worse than that. If comrade Kamala gets another four years, millions more jobs will vanish overnight. Inflation will completely destroy our country. Your life savings will be wiped out. With a Trump victory, we will once again have the greatest economy in history. MAGA 2024!”

While there are parts of that statement I agree with, I believe his overall statement was very hyperbolic and somewhat questionable. The truth is, the job market is not as strong as we have been led to believe over the past year. If the same miscalculation that persisted through March continues, which I suspect it will, can you imagine where we are now? There’s a lot to discuss on this topic. I think it was a much bigger deal than anyone else, aside from President Trump, made it out to be.

From April through July, the same method of calculation was likely used, leading us to believe the job market is stronger than it actually is. I would have loved to have been a fly on the wall at the Jackson Hole meeting with the Federal Open Market Committee (FOMC) when they received this data. This week, the FOMC meeting minutes were released, but it didn’t reveal much new information. It remains widely expected that the Fed will cut rates in September. My prediction is that the August jobs report will confirm that the labor market is deteriorating rapidly, prompting a 50 basis point cut, though I realize I may still be in the minority with this view. The majority seems to be expecting only a 25 basis point cut.

I would have liked to see the Fed cut rates by 25 basis points in July, and apparently, several FOMC members felt the same way. Here’s what the meeting minutes said about those members:

“All participants supported maintaining the target range for the federal funds rate at 5.25% to 5.5%, although several noted that recent progress on inflation and increases in the unemployment rate provided a plausible case for reducing the target range by 25 basis points at this meeting, or that they could have supported such a decision.”

We’ll see what happens there. Weekly initial unemployment claims came in at 232,000 for the week, as forecasted, while last week was revised up by 1,000 to 228,000. The four-week moving average ticked down by 1,000 to 236,000 from 237,000 last week. Continuing claims were in line with expectations, rising by 4,000 week over week to 1.863 million, and continue to hover around the highest reading since November 2021. Continuing claims have been trending upward over the last three months, indicating a slow but steady increase in layoffs, which is not a good sign. Just like the politics of progressivism, the BLS establishment survey revisions, as seen yesterday, prove that hirings are indeed slowing since almost a million jobs have disappeared or never existed.

So what’s coming next week? Nvidia earnings. Why is a single company’s earnings report so important to the market? It’s because of Nvidia’s size and stellar performance. Since May 2023, the chip company has accounted for nearly 30% of the S&P 500’s total return for the first six months of this year, even though it’s just one of the 500 companies in the index. Nvidia represents only 0.2% of the S&P if you take the equal-weighted view. However, since the S&P is not equally weighted, Nvidia has had a significant influence on the market’s performance. It has the potential to be a big drag on the markets if it disappoints. Just earlier this month, a slide in Nvidia’s stock helped drag the S&P down nearly 10% from its all-time high set just a month prior. On some days, the S&P falls even when the majority of stocks across Wall Street are rising because of Nvidia’s influence.

So Nvidia’s earnings release definitely has the potential to be a market mover, either positively or negatively. Next week, we will also get readings for the Personal Consumption Expenditures (PCE) index. The PCE is the Fed’s preferred measure of inflation, and we’ll receive that report next week. We’ll also get numbers for personal income and spending for the month of July.

Now that you’re informed about recent and upcoming financial issues, we hope you’ll learn more about our ministry and how we can help you integrate these issues into your stewardship. What should you do about the news, the economy, and the markets? How should you handle your portfolio? These are questions we help you answer in a simple way. Find out more about how we can help you “defund darkness” with our biblically responsible investment strategy by visiting financialissues.org.