Capital Markets Update for the Week of September 6, 2021

Friday, we learned that the U.S. economy slowed job growth in August, with payroll employment rising just 235k compared to an average of more than one million over each of the prior two months. Leisure and hospitality added zero jobs in August, which marked the slowest month of growth since January 2021, largely due to concerns for the spread of the delta variant. While some say the move won’t affect the tapering discussion by the Fed, it pretty much removes any tapering announcement this month. The Fed’s projected path of inflation and interest rates was based on an assumption that economic growth would continue to accelerate.

The lower-than-expected jobs gain in August should not be taken as a sign that the job market is cooling. It’s not that jobs are in short supply, it’s that qualified workers willing to fill those jobs are hard to come by. The NFIB small business survey reported the number of businesses having difficulty filling open positions rose to a record high in August. While there are many factors at play from surging COVID cases, lack of childcare, and extended jobless benefits to name a few, several of these impediments could be abated with higher pay. Average hourly earnings rose 0.6 percent in August, more than twice expectations, and were up 4.3 percent over the last twelve months. Consumer spending continues to shift towards the service sector and the boom in goods spending appears to be fading. August’s consumer confidence report was the lowest since the winter and showed buying intentions for large durable goods such as cars and appliances declined.

After markets were closed yesterday for Labor Day, we return today to a quiet calendar in terms of data with just the Employment Trends Index for August due out later this morning. The Desk will purchase an average of $4.9 billion MBS per day over the holiday-shortened week, with Class A 48-hours on Friday. We begin the day with Agency MBS prices worse about .125 and the 10-year yielding 1.36 after closing last week at 1.32 percent.

Market commentary by Rob Chrisman