The major averages closed lower again this week in the aftermath of the Federal Reserve statement last week. The tough talking Jerome Powell let it be known that the Fed will continue to raise interest rates until it has driven a stake through the heart of inflation. This left investors feeling uneasy, given the headwinds the economy is currently facing. All eyes were on the jobs report today, and it didn’t disappoint. We should expect increased volatility between now and the next Fed FOMC meeting later this month. It is also worth noting, that the technical indicator I referenced a couple weeks ago held true (at least in the short-run).
You might remember the U.S. Nonfarm Payrolls number came in at an extraordinary 526,000 in July. This caught everyone off guard considering the expectation was for less than half that number. It also set the expectation that the Fed might have to be even more aggressive in tackling inflation. Fortunately, the August report, which was released today, returns to a more normal number with 315,000 jobs created in the month. This is right about where analysts had expected the number to fall and suggests the Fed could loosen up on its tightening path. Among the more interesting things in the report, average hours earnings came in below forecasts and the labor force participation rate rose. In a nutshell, the August employment report paints a very positive picture regarding the current state of the U.S. economy with solid job growth yet signs that supply strains are easing as workers return to the labor force.
Among the other pieces of data this week, it seems consumer confidence is also back on the rise. While still well off its high, it broke the downtrend we’ve experienced this year. One month does not make a trend, but this is one indicator we will be closely following in the months ahead. Regardless of confidence, and in no small part due to inflation, consumer spending continues to rise. Visa reported U.S. payments volume climbed 11% from a year ago, even after the company suspended its operations in Russia in March of this year. Credit payments volume increased 17% and debit volume rose 7% y/y. Complementing this data is Costco, which this week announced sales growth of 10.1% and net sales of $17.55B, up 11.4% from a year ago.
On to non-data issues, this is one I didn’t think I’d ever see. Smoking marijuana in America is now more popular than cigarettes. According to a new Gallup poll, 1 in 6 Americans are smoking marijuana these days. For many years, the danger of cigarette use was not recognized and even after its health problems became known, it took many decades and lots of legislation to bring its use down to where it is today. It seems marijuana is taking the place of cigarettes for many and this trend appears to be accelerating.
As for the conundrum of the week, what do you do when you own an electric vehicle and the governor of your state asks you not to charge it? As ridiculous as this sounds, it happened this week in California which faces a heat wave which is testing the limits of its electric grid. The grid operator is asking residents to voluntarily limit their electricity use from 4pm to 9pm with temperatures expected to soar above 100 degrees Fahrenheit. In what must be considered a bout with irony, Governor Newsome is now pushing a bill through the state legislature to keep the nuclear reactor at Diablo Canyon open another ten years despite his own bill which passed several years ago to close the plant by 2025.
In closing, I learned something from a coworker this week that I must pass along. Who here doesn’t know Kenny G? The mellifluous sound of his soprano saxophone will either cause you to smile or cringe. Either way, his net worth is north of $100 million. You’d be mistaken to think this came from his music sales and tours. In fact, Kenny G was one of the original financial backers of Starbucks, long before it went public. It seems his uncle gave Kenny G a hot tip to back this newcomer named Howard Schultz. The rest is history. Ten thousand dollars invested in the IPO would be worth $2.46M today. You can imagine what an investment in Starbucks prior to the IPO might look like. As a side note, it is rumored that Kenny G also was behind the creation of the Frappuccino but Starbucks has not confirmed or denied this other than to say, Kenny did have a hand in its creation although its conception was already underway. Now you know.Bruce J. Mason, MBA