In today’s Steady Investor, we focus on important factors that we believe are making an impact on the market today, such as:
How Economic Restrictions in Asia Affect the Global Economy – The Covid-19 Delta variant is causing problems for many countries across the globe, but it’s been weighing particularly hard on countries with low vaccination rates. And many of those countries are key to global supply chains. Vietnam is a prime example – only 3% of the population is vaccinated, and an outbreak there has led to lockdowns and economic restrictions that have stifled factory activity. A survey of manufacturing purchasing managers found that Vietnam, along with Malaysia and Indonesia, has seen factory activity move into contraction territory. That has left many Western brands that rely on Vietnamese factories to see a rise in costs. Companies like Adidas, Crocs, and Steve Madden rely heavily on Vietnamese manufacturing, which delivers over 30% of U.S. shoe imports. That’s why some 80 shoe and apparel companies wrote a letter to President Biden asking the administration to help Vietnam accelerate vaccinations. Taken together, economic restrictions in Vietnam and elsewhere in Asia can add to an already long list of supply chain issues, from delays at ports to rising raw-material prices, and ultimately, to higher costs for consumers.1
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Housing Supply Ticks Up, But Prices Remain Firm – The housing market has charged ahead over the last year, with prices moving firmly higher and demand outweighing supply. There are signs, however, that supply is catching up, while demand backs slightly off its highs. The inventory of homes for sale at the end of July was 1.32 million, which is up 7.3% from June and marks the highest level of homes available since October 2020. With more homes on the market, sales of new single-family homes also ticked higher last month, rising 1% to a seasonally adjusted annual rate of 708,000. Even still, that level of sales is still lower than the pace at the start of the year, as limited supply raised prices and discouraged my new buyers. Homebuilders are still pushing to catch up, as there is a widespread belief that there are plenty more homebuyers still waiting in the wings for new houses to come online. While the current number of new homes for sale is still well below levels seen during the peak of the previous cycle, it’s clear that supply is picking up.3
Source: Federal Reserve Bank of St. Louis4
Is the U.S. Economy Already Cooling Off? The U.S. economy continues to expand, but there are a few signs that the pace of growth may be cooling off. In August, factories and service providers – as measured by the IHS Markit surveys of purchasing managers – saw activity dip materially. On the service-sector side, the purchasing manager’s index fell to an 8-month low of 55.2, while the manufacturing index sunk to a 4-month low of 61.2. There’s good news here, however – any reading above 50 signals expansion, so the economy is still showing relatively strong growth readings. The slowing pace of expansion is almost certainly due to the effects of the latest wave of Covid-19 infections, which may have caused consumers to retreat slightly as businesses also made adjustments. Cancellations, postponements, and other shifts in consumer and business behavior are softening activity.5
Out-of-Office for Two Years? Many businesses are now coming to terms with the reality that offices may be closed for a full two years, assuming a return to work does not happen until early 2022. Some major corporations are already announcing postponements – Apple announced to corporate employees that the planned return to U.S. offices would have to wait until January 2022 at the earliest, and other major companies like Chevron and Wells Fargo have pushed back planned September returns. Same goes for Facebook and Amazon. Other corporations like Goldman Sachs have announced vaccination requirements for employees and clients who wish to visit offices in person, which adds another layer to the challenges associated with reopening offices.6
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