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Weekly Market Minute

The Weekly Market Minute is written by Rank Dawson, Vice President of Research and Strategy, and is published every Wednesday.

The monthly rate of change in the Consumer Price Index has been slowing but a more detailed look at the inflation picture suggests that this will likely be temporary, and the index will likely increase in coming months.

The rate of monthly increase in the Consumer Price Index (CPI) during August slowed month over month to 0.30%, the smallest increase since January 2021.  The month-over-month (MoM) increase peaked in July at 0.90% and this has led to some discussion as to whether inflation may have peaked.  Looking at the underlying CPI data and...
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The direction of the labor force participation rate in the next few months and the next few years will provide important insight into the near- and longer-term potential growth rate of the economy.

For several weeks, we have been writing about trends in the labor market and the importance of monitoring the labor force participation rate.  The labor force participation rate has not changed in the last year and is well below the January 2020 level (61.7% vs. 63.4%).  Source: FRED. The expectation of most economists is that...
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Federal enhanced unemployment benefits expired last week, and the coming months should provide helpful insight into what is holding back a stronger improvement in the labor market and the impact to consumer data in general.

The labor market data for the month of August was disappointing in terms of the number of new jobs and the lack of progress in labor force participation.  The more important data point was the expiration of the enhanced unemployment benefits.  Going forward, future payroll reports will include survey periods post the expiration of benefits. ...
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Several states decided to end enhanced and extended unemployment benefits during the month of June. Early indications have shown that this has not made a difference in terms of labor market activity, but it has also not negatively impacted other consumer data.

At the end of June, we wrote an update discussing the changes certain states were making regarding unemployment benefits.  Several states were ending the enhanced payments from the federal government and the expanded coverage that had allowed people outside of the normal unemployment insurance program to file claims. At the time, we noted that it...
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There was an increase in market volatility last week that was heavily impacted by the recent acceleration in the U.S. dollar exchange rate. While this is a concern, most of the market signals we monitor continue to suggest deflation and recession risks remain low.

Last week, we noted that market signals were going to be a helpful guide for determining investors’ expectations for the future state of economic growth and inflation.  Volatility increased last week, especially in commodities and currencies.  However, most market signals still suggest that the economy is not headed toward a recession or deflation. In the...
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Economic data is still being heavily influenced by the impact of COVID-19, making comparisons to 2020 challenging in terms of determining the trajectory of growth and inflation. We think market signals are going to be a more helpful guide in determining the economic outlook priced into assets.

Due to the large moves up and down in economic data in 2020 caused by the shutdown of activity, it is challenging to determine the expected path of the rate of change in economic activity because the comparison set is so unusual.  The rate of change in economic growth and inflation rates has important implications...
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More global economic data was released suggesting economic growth rates are likely peaking, but the economy is not at risk of contracting. This data suggests changes in the assets that outperform but not a widespread decline in risk assets.

In our last update we noted that economic growth was slowing as the recovery matures and the weakest comparisons from 2020 have passed, but recession risk remains remote.  The global PMI data last week provided some confirmation of this view. The global Markit Composite PMI (services and manufacturing) declined one point to 55.7 as both...
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Economic data and market signals are suggesting the recovery has moved beyond the early cycle stage and the rate of economic growth is going to likely lose speed. This has implications for the amount and the type of things that can perform well.

Last week, we noted that Treasury yields have been declining while other market signals were not suggesting that growth and inflation were declining.  Last month, we noted that on a longer-term basis cyclicals, higher beta, and lower quality securities were outperforming even though they had been recently lagging.  We believe it would be helpful to...
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The decline in the yield of the 10-year Treasury could be looked at as an indication that the outlook for growth and inflation are falling. The cross-asset class indicators we track are not confirming this view, even at the recent lows.

The U.S. 10-year Treasury yield peaked on March 31st at 1.75% and has been steadily decreasing, with the pace accelerating in June.  The yield briefly dropped below an important trend level of 1.30%, then ended the week at 1.36%.     Source: Koyfin. This was being reported as a potential sign that the outlook for economic...
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Some of the large price increases that garnered media attention during the pandemic are unlikely to remain at an elevated level as the economy normalizes. They are a small part of the overall CPI calculation, and the major components are likely to continue increasing in the second half of 2021.

One of the major debates in the economic arena is whether current inflation levels are sustainable.  We thought it would be helpful to take a look at the component weights in the Consumer Price Index (CPI) calculation and the trends of the major inputs. The largest single category of the CPI calculation is shelter and...
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