Jobless Claims Plunge Below a Key Level, Consumer Spending is Robust and Corporate Earnings are Strong

Oct 15, 2021 | Nick Scholte


Share

No surprise then that the markets had a good week and are again nearing all-time highs after the recent September correction.

To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 2.5%; the U.S. Dow Jones up 1.8%; and the U.S. S&P 500 up 1.6%.

Keeping things simple again this week, let’s briefly focus on just three relevant topics: the trend in weekly jobless claims; the surprise increase in consumer spending; and a great start to quarterly earnings in the U.S.

Regarding weekly jobless claims, at 293,000 new claims reported, this key metric tracked by RBC came in at a new pandemic era low, down 36,000 from the prior week and below the psychological threshold of 300,000. As a reminder, the trend in weekly jobless claims is perhaps the number one indicator of looming recession tracked by RBC. If/when claims rise sharply and are sustained at elevated levels for several weeks, that is a signal that would catch our attention. At present, there is nothing to see here.

On consumer spending, this is an economic measure I don’t often cite unless it illustrates a point. At up 0.7% month-over-month vs expectations of a 0.2% decline, in addition to an additional 0.2% upward revision to the prior month’s reading, this morning’s release certainly illustrates a point. The point being that despite all the hand-wringing over supply chain disruptions (which I concede are real and a headwind limiting potential growth although certainly NOT reversing growth into recession), consumers are flush with cash and looking to spend. Since consumer spending accounts for nearly 70% of U.S. GDP, the significance of this morning’s surprise apparent.

Lastly, without delving into details, I’ll simply note that U.S. earnings season has kicked off the past two days with very robust earnings reported – particularly by the large U.S. banks. Both earnings and revenue reported by the majority of banks came in well ahead of expectations. It remains to be seen how the remainder of earnings season plays out in other sectors, but the integral role banks play in the U.S. economy bodes well as a leading indicator.

As noted a few weeks ago, corrections are a normal part of market dynamics. Trying to “time” them is nigh impossible. Since my fundamental outlook for healthy economic expansion remained during the recent ~ 5% September correction, portfolios remained overweight equities and are now enjoying the recovery in share prices seen this week.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com

Visit Our Website: www.nickscholte.ca

We accept new clients primarily by referral from our existing clients. If you have family or friends who would be a good fit for our specialized wealth management services, please let us know.

Any recommendations herein are for the exclusive use of clients of RBC Dominion Securities and Investment Advisor Nick Scholte. Any other direct or indirect recipient of this email should consult with his/her own licensed investment advisor prior to implementing any investment action he/she may be contemplating.