Economic Risk Factor Update: August 2024 [SlideShare]

Hiring slowed notably in July, which could signal potential weakness for the labor market, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.

For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.

1. Economic Risk Factor Update August 2024

2. Source: Institute for Supply Management, Haver Analytics As of 8/5/2024 ISM Services: Services PMI Composite Index Seasonally adjusted, 50+ = Increasing The Service Sector Risk Level

3. The Service Sector continued Service sector confidence improved in July, with the index rising from 48.8 in June to 51.4 in July. This result brought the index into expansionary territory for the month; however, service sector confidence has trended lower throughout the course of the year. Risk Level

4. Source: Bureau of Labor Statistics, Haver Analytics As of 8/2/2024 All Employees: Total Nonfarm % Change – Year to Year, Seasonally adjusted Private Employment: Annual Change Risk Level

5. Private Employment: Annual Change continued 114,000 jobs were added in July, following a downwardly revised 179,000 jobs in June. This marked 43 consecutive months of job growth; however, the unemployment rate rose to a more than two-year high during the month. Given the slowdown in hiring in July, we have downgraded this indicator to yellow for now. Risk Level

6. Source: Haver Analytics As of 7/31/2024 Spread Between 10-Year U.S. Treasury and 3-Month U.S. Treasury Yield Curve (10-Year Minus 3-Month Treasury Rates) Risk Level

7. Yield Curve (10-Year Minus 3-Month Treasury Rates) continued The yield curve inversion widened during the month. The 10-year Treasury yield fell from 4.36% to 4.09%. The 3-month Treasury yield fell from 5.48% in June to 5.41% in July. This marked 22 consecutive months with an inverted 3-month 10-year yield curve. While this doesn’t guarantee that the economy will enter a recession, it’s a widely monitored technical signal that could indicate further slowdowns. Risk Level

8. Source: The Conference Board/Haver Analytics As of 7/30/2024 Conference Board: Consumer Confidence % Change – Year to Year Seasonally adjusted, 1985=100 Consumer Confidence: Annual Change Risk Level

9. Consumer Confidence: Annual Change continued Consumer confidence rose from 97.8 in June to 100.3 in July. Consumer confidence fell 12.02 percent on a year-over-year basis in July, marking five consecutive months of declining year-over-year confidence. Given the continued year-over-year decline, we have left this indicator at yellow for now. Risk Level

10. Conclusion: Slower Economic Growth Ahead The data releases in July showed signs of slower economic growth during the month. While the continued hiring growth was positive, the labor market is showing signs of potential weakness ahead. Given the recent volatility, service sector and consumer confidence are worth monitoring going forward. The path of recovery remains uncertain in the short term, and caution is still warranted. Risk Level

11. Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged, and investors cannot invest directly in an index. The information contained herein is provided for informational purposes only and is based upon sources believed to be reliable. No guarantee is made as to the completeness or accuracy of the information. Disclosure