Weekly Macro Update: Aug 27th, 2024

Fed confirms rate cuts are coming; economy is healthy; Nvidia earnings Wednesday!

Macro Scorecard

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What Happened This Past Week?

Monday, August 19: Leading Indicators Index

• The LEI fell 0.6% in July to 100.4, following a 0.2% decline in June.

• The Conference Board expects real GDP growth to slow, projecting 0.6% annualized in Q3 and 1% in Q4 2024.

Takeaway: The LEI is still negative year-over-year but has bottomed and is moving higher (good sign).

Tuesday, August 20: Fed Speeches

• Federal Reserve Bank of Atlanta President Raphael Bostic mentioned that further labor market weakness could lead to more rapid or larger rate cuts.

• The size of the first rate cut — a quarter point or a half point — will depend on the data, Bostic said.

Takeaway: Rate cuts are coming, but the size of cuts will be dependent on economic data over the coming weeks.

Wednesday, August 21: Non-farm Payrolls Revision

• Job numbers were revised down by 818K, the second-largest revision on record.

• Average monthly job gains for Spring 2023-2024 were cut to 175K from 242K.

• Professional and business services (-385K), leisure and hospitality (-150K), and manufacturing (-115K) saw the largest downward revisions. Transportation, warehousing, and health services saw upward revisions.

Takeaway: The labor market is softer than previously thought, with job growth decelerating faster than initially reported. However, the direction of travel is still up.

Thursday, August 22: Jobless Claims and Flash PMIs

• Initial jobless claims averaged 236K since early June, up from 213k in early 2024. Texas and Michigan are largely responsible for recent volatility in claims.

• S&P Global Composite PMI decreased to 54.1 in August from 54.3 in July.

• S&P Manufacturing PMI fell to 48 (8-month low), while Services PMI rose to 55.2.

Takeaway: The US economy is now almost entirely driven by the services sector (accounts for ~72% of US GDP, up from ~60% in 1990). The services sector continues to drive economic growth, offsetting weakness in manufacturing.

Friday, August 23: Jerome Powell's Speech

• Powell signaled a clear shift towards rate cuts, stating "The time has come for policy to adjust". The Fed now sees both inflation and labor market conditions supporting a less restrictive policy.

• Powell noted the Fed "does not seek or welcome further cooling in labor market conditions."

• Analysts expect rate cuts to begin at the September 18 FOMC meeting, with four cuts anticipated by year end.

Takeaway: The Fed is pivoting towards a more accommodative stance, with rate cuts likely to begin soon. Sectors that benefit most from rate cuts (historically) include consumer cyclicals, technology, consumer non-cyclicals, and healthcare sectors.

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Sentiment

The AAII Sentiment Survey offers insight into the opinions of individual investors

The NAAIM Exposure Index represents the average exposure to US Equity markets

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Economic Releases This Week

• Tuesday: US Conference Board consumer confidence, S&P home price index

• Wednesday: Nvidia earnings

• Thursday: US GDP (2nd revision), initial jobless claims

• Friday: US personal income, spending, PCE; consumer sentiment

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