Massive Job Gains Continue

This week's important economic reports modestly surpassed investor expectations, and the economic recovery has continued to be faster than anticipated. Despite the strong data, though, mortgage rates dropped slightly to fresh record low levels.

The data from other areas of the report was similarly encouraging. The unemployment rate dropped sharply from 11.1% to 10.2%, which was better than the consensus forecast of 10.5%. Average hourly earnings, an indicator of wage growth, unexpectedly rose in July and were 4.8% higher than a year ago. According to the Labor Department, the greatest strength was seen in hospitality, government, retail, business services, and health care. 

Two other major economic reports released this week also exceeded expectations. The ISM national services index rose to 58.1, which was well above the consensus forecast of 55.0, and was the highest level since February 2019. Similarly, the ISM national manufacturing index increased to 54.2, the highest level since March 2019. Readings above 50 indicate an expansion in the sector.

Looking ahead, investors will continue watching for news about medical advances, government stimulus programs, Fed monetary policy changes, and plans for reopening the economy. Beyond that, the Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Retail Sales will be released on Friday. Since consumer spending accounts for about 70% of all economic activity in the US, the retail sales data is a key indicator of growth.