- The ISM Manufacturing Index registered 52.8% in June, its lowest reading since June 2020
- 528,000 jobs were added in the U.S. in July
- The 2-year Treasury bond yielded 3.22% on Friday, versus 2.83% for the 10-year Treasury bond
Top Three Market Headlines
Business Surveys Reflect Diverging Trends: Business activity in the U.S. continued to expand in July, according to surveys of executives by the Institute for Supply Management (ISM), though trends diverged between the manufacturing and services sectors. Activity in the former decelerated, with the ISM Manufacturing Index registering 52.8%, down from its June reading of 53.0%. Though still reflecting expansion (a reading above 50% indicates expansion of activity, while a sub-50% reading spells contraction), the July reading was the lowest since June of 2020. Alternatively, activity in the services sector was more resilient in July, with the ISM Services index rising to 56.7% versus 55.3% in June.
Job Gains Surprise to the Upside: The Labor Department reported last week that U.S. nonfarm payrolls rose in July by 528,000, the largest monthly increase in five months. Growth was led by gains in leisure and hospitality, professional and business services, and health care. Meanwhile, the unemployment rate ticked down from 3.6% to 3.5% in July. Both measures, total nonfarm employment and the unemployment rate, have now returned to their pre-pandemic levels in February 2020. The report also reflected the on-going wage pressures facing businesses, as hourly earnings increased at a rate of 5.2% over the prior 12 months.
Yield Curve Inversion Widens: Last week saw the 2-year Treasury bond yield exceed that of the 10-year Treasury bond, an infrequent occurrence known as an inverted yield curve, for the fifth straight week. The typical yield premium offered by the longer-dated bond turned negative in early July and has remained so ever since. With the 2- and 10-year bond yields ending last week at 3.22% and 2.83%, respectively, the spread between the two fell to -0.40%, the widest inversion since 2000. Observers watch this relationship closely, as economic recessions often have been preceded by an inverted yield curve; however, there have also been occasions when an inverted curve gave a "false signal" and did not foretell a recession.