The Manufacturing Recession Continues

In his podcast addressing the markets today, Louis Navellier offered the following commentary.

Unemployment Surge

The Labor Department on Friday reported that 187,000 new payroll jobs were created in August, which was a bit better than economists’ consensus estimate of 170,000. However, the June and July payroll reports were revised lower by a cumulative 105,000 and 157,000, respectively. I am happy to see that the Labor Department is now much closer to ADP in the past three months.

However, the real surprise was that the unemployment rate surged to 3.8% in August, up from 3.5% in July, due to the fact that over 736,000 people entered the workforce. The labor participation rate rose to 62.8% in August, up from 62.6% in the past few months, so more people are participating in the workforce. 

Average hourly earnings in August rose by only 8 cents to $33.82 and 4.3% in the past 12 months, so wage inflation appears to be cooling. The Yellow Freight bankruptcy is likely the primary culprit behind a 37,200 drop in transportation and warehousing jobs in August.

Manufacturing Recession Continues

The Institute of Supply Management (ISM) on Friday announced that its manufacturing index improved to 47.6 in August, up from 46.4 in July. That was the good news. The bad news is that the ISM manufacturing index has been under 50 for ten straight months, so the manufacturing recession continues. 

The new orders component declined to 46.8 in August, down from 47.3 in July.  The backlog of orders component rose to 44.1 in August, up from 42.8 in July. Since any reading below 50 signals a contraction, it appears that the manufacturing recession will persist, especially if the UAW goes on strike on September 15th

The primary reason the August ISM manufacturing index improved in August was due to the fact that the price component rose to 48.4 in August, up from 42.6 in July.  Additionally, the production component rose to 50 in August, up from 48.7 in July. Overall, only 5 of the 18 industries surveyed reported growth in August, so the manufacturing recession persists.

The manufacturing recession and related job losses according to ADP are running counter to the “Bidenomics” message emanating from the White House. So far, the Biden Administration’s onshoring efforts have failed to create new jobs, since manufacturing employment has been falling. Furthermore, the Biden Administration has been losing support among working-class voters and Hispanics, who continue to worry about economic issues, like the higher cost of living.

Speaking about the cost of living, I should add that gasoline prices are now at their highest level this year, which is annoying inflation-wary Americans. The fact that inventories remain low for crude oil and refined products is facilitating the high prices at the pump.

No Price Relief

The Energy Information Administration (EIA) on Wednesday reported that crude oil inventories plunged by 10.6 million barrels in the latest week, which is more than double the drop of analysts’ consensus estimate of 5.2 million barrels. Typically, peak summer demand ebbs after Labor Day, so it will be interesting if there is any meaningful relief in the upcoming weeks. 

However, when the refineries shift from summer fuels to “oxygenated” winter fuels, gasoline inventories typically decline and gasoline prices all too often surge higher, so any price relief may be temporary.

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