Market Update – March 11th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, March 11th, 2024

Financial Markets
Equities slipped last week as better than expected job gains and a higher-than-expected unemployment rate offered mixed signals on the state of the US job market. As of close on Friday, March 8th, the S&P 500 fell -0.26%, the Dow Jones Industrial Average fell -0.93%, and the Nasdaq Composite fell -1.17%, while the Barclays Aggregate Bond Index rose +0.76% for the week.

Market News

February Jobs Report. In February, the US added +275,000 jobs according to the latest nonfarm payroll report, surpassing the expected +194,000. However, the unemployment rate came in higher than expected at 3.9%, compared to the anticipated 3.7%. Average hourly earnings saw a slight increase of +0.1% MoM, below the expected +0.2%, while the average workweek edged up to 34.3 hours. Job gains were primarily observed in healthcare, government, food services and drinking places, social assistance, and transportation and warehousing.

Source: BLS

Looking at broader trends, the one-year change in the unemployment rate has been trending upwards since mid-2021. While some of this may be attributed to extraneous factors lingering from the pandemic, it also suggests potential underlying trends. As we near a possible Federal Reserve rate cut, investors will closely monitor the unemployment rate for insights into the Fed’s next steps.

ISM Manufacturing. February’s ISM Manufacturing Index disappointed economists, registering at 47.8%, below the more neutral 49.5% that was expected. This marked the 16th consecutive month of contraction in economic activity within the manufacturing sector. Moreover, the U.S. manufacturing sector experienced a faster rate of contraction in February compared to January, with demand slowing and output easing according to the Institute for Supply Management

The ISM Manufacturing Index continues to be one of the more bearish leading indicators in our assessment of economic conditions, however most coincident economic indicators have yet to show significant cracks in the US economy.

Source: ISM

ISM Services. February’s ISM Services Index came in just below expectations at 52.6%, down slightly from January’s 53.4% reading. Out of the14 reported industry categories, only three reported a decrease in February, which included Arts, Entertainment & Recreation; Mining; and Real Estate, Rental & Leasing. Overall, the service sector remains a source of strength for the US economy. It presents a different picture of economic growth compared to the ISM Manufacturing Index, highlighting the resilience of the service industry, particularly since the onset of the pandemic.

Source: ISM

Consumer Credit. In January, consumer credit outstanding rose by 4.7% compared to a year ago, driven primarily by an increase in revolving credit, which includes things like credit cards. More specifically, revolving credit saw a notable rise of 7.6% from the previous year, while nonrevolving credit, which encompassing items like mortgages, car loans, and student loans, increased by 3.6%. Both of which were up from December.

These increases are notable, especially considering they occurred during a month typically associated with reduced consumer spending following the holiday season. Furthermore, consumers’ reliance on debt, particularly revolving credit, poses risks, especially if jobless numbers were to rise.

Moreover, the increased use of revolving credit might indicate underlying cracks in the economy, as consumers turn to short-term borrowing. Additionally, the situation is compounded by the fact that revolving credit often carries variable interest rates, which have been rising as the Federal Reserve has hiked rates. Overall, the data does not appear to be outright bearish, however keeping a keen eye on data points like consumer credit outstanding to get a full read on US consumers.

Source: Federal Reserve

Summary
Last week, equities slipped amidst mixed signals from the US job market. February’s nonfarm payroll report exceeded expectations with the addition of +275,000 jobs, yet the unemployment rate unexpectedly rose to 3.9%. The ISM Manufacturing Index indicated the 16th consecutive month of contraction in the sector, while the ISM Services Index showed continued resilience. Consumer credit rose in January, particularly revolving credit, raising concerns about increased debt reliance.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.