Household Income Rises, Aluminum Prices Soar, Covid-19 Still Impacting Supply Chains
In today’s Steady Investor, we dive into current news and key factors that we believe are currently impacting the market, such as:
- Sentiment sours while U.S. households remain strong
- The surge of aluminum prices
- Covid-19 outbreaks prolong supply chain fixes
- Expanded unemployment benefits affect hiring
U.S. Households Remain in Strong Position, While Sentiment Sours – The U.S. Commerce Department reported this week that household income rose by 1.1% in July, which marked the strongest pace of increase since stimulus checks went out in the first quarter. Government stimulus was still at work in the July numbers – families started receiving the expanded child tax credits by check or direct deposit, with payments that start at $250/month but can be much higher depending on income and family size. Earlier in the summer, families seemed likely to go out and spend the new dollars, but growth in consumer spending has slowed considerably as Delta cases pick up. Growth in consumer spending in July was just 0.3% from June levels, which marked a considerable deceleration from the 1.1% growth posted from May to June. According to Oxford Economics, spending is expected to increase at an annual rate of 3.5% from July to September, which is less than half of what they estimated earlier in the summer. The upshot is that many American families are doing what they did earlier in the pandemic – stashing away extra cash as savings, which sets up the possibility of another spending surge once the pandemic risk fades.1
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Aluminum Prices Surge Past Other Commodities – The co-CEO of Monster Beverages, Hilton Schlosberg, has been in the beverage business for a long time – and he has never seen aluminum prices this high. Much like other commodities caught up in supply chain entanglements – like copper and lumber – aluminum has been in high demand as companies race to restock inventory and fill customer orders. The issue is not that there is a shortage of aluminum. It’s that much of the metal is located in Asia, and U.S. and European buyers do not have a cost-effective, quick way to move the metal overseas. The containers used to ship aluminum around the world are in high demand and short supply, and freight costs and lag times are being prohibitive to doing business. These imbalances have led aluminum forward prices to jump by over 30% this year, to approximately $2,650 per metric ton. That’s about 80% higher than prices were at the low point in May 2020 and marks a 10-year high. The other wildcard is China, which in 2020 became a net importer of aluminum, meaning that the U.S. and Europe are now competing with China as buyers. Problem is, China is geographically close to the stockpiles.3
How Continued Covid-19 Outbreaks Prolong Supply Chain Fixes – Issues with supply chains are a recurring theme in economic commentaries, largely because they are critical to normalizing price pressures and ensuring predictable sales and margins for corporations. Covid-19 outbreaks, particularly in Emerging Markets, are key to monitor because they can prolong the time needed for supply chains to run smoothly. A case-in-point is Malaysia, which is an underappreciated link to the global semiconductor supply chain but is also experiencing a spike in Covid-19 cases and hospitalizations. Malaysia is a critical country for assembling and testing semiconductors, and factory closures there can result in additional delays. China is also grappling with a new wave of infections which have led to lockdowns across the country, causing a key construction and service sector index to fall into contractionary territory. China’s official manufacturing PMI has also declined to its lowest level in 18 months.4
How Expanded Unemployment Benefits Affected Hiring – There has been plenty of debate over whether expanded unemployment benefits inhibited hiring in states that continue to provide them (though the expanded benefits are set to end next week). A recent analysis by the Wall Street Journal and economists found that nonfarm payrolls rose 1.33% from April to July in the 25 states that ended the unemployment insurance benefits while rising 1.37% in the 25 states that kept them on. In other words, no difference in hiring trends, according to this analysis. Goldman Sachs took a different approach to the data and arrived at a different conclusion. The investment bank says that if all states had ended the benefits at the same time, July would have seen 400,000 more jobs than it otherwise did. Goldman believes the ending of the expanded benefits next month will lead to 1.5 million job gains by the end of the year.5
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2 Zacks Investment Management reserves the right to amend the terms or rescind the free Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
3 Wall Street Journal. August 30, 2021. https://www.wsj.com/articles/aluminum-notches-decade-highs-on-soaring-demand-snarled-supplies-11630311034
4 Wall Street Journal. August 24, 2021. https://www.wsj.com/articles/covid-19-surge-in-malaysia-threatens-to-prolong-global-chip-shortage-11630234802
5 Wall Street Journal. September 1, 2021. https://www.wsj.com/articles/states-that-cut-unemployment-benefits-saw-limited-impact-on-job-growth-11630488601
6 Zacks Investment Management reserves the right to amend the terms or rescind the free Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
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