Whenever I look at an ETF that tracks a broad index, I first look at the economic backdrop to determine if the economy is expanding or contracting. I then look at the ETFs charts to determine if it's a time to buy (if the economy is expanding) or sell.
In this piece, I will look in more detail and the four main coincidental economic indicators along with real GDP, which adequately summarizes the coincidental data.
Total nonfarm payroll employment rose by 235,000 in August, and the unemployment rate declined by 0.2 percentage point to 5.2 percent, the U.S. Bureau of Labor Statistics reported today. So far this year, monthly job growth has averaged 586,000. In August, notable job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services. Employment in retail trade declined over the month.
The unemployment rate declined by 0.2 percentage point to 5.2 percent in August. The number of unemployed persons edged down to 8.4 million, following a large decrease in July. Both measures are down considerably from their highs at the end of the February-April 2020 recession. However, they remain above their levels prior to the coronavirus (COVID-19) pandemic (3.5 percent and 5.7 million, respectively, in February 2020).
Here are several relevant charts.
Total establishment jobs are growing.
However, last month's report was disappointing.
The unemployment rate continues to move lower.
Personal income grew in the latest report:
Personal income increased $35.5 billion, or 0.2 percent at a monthly rate, while consumer spending increased $130.5 billion, or 0.8 percent, in August. The increase in personal income primarily reflected increases in compensation as well as government social benefits, which reflect advance Child Tax Credit payments authorized by the American Rescue Plan.
Real personal income less transfer payments quickly rebounded from after the recession. But it has since trended sideways.
Industrial production increased 0.4 percent in August after moving up 0.8 percent in July. Late-month shutdowns related to Hurricane Ida held down the gain in industrial production by an estimated 0.3 percentage point. Although the hurricane forced plant closures for petrochemicals, plastic resins, and petroleum refining, overall manufacturing output rose 0.2 percent. Mining production fell 0.6 percent, reflecting hurricane-induced disruptions to oil and gas extraction in the Gulf of Mexico. The output of utilities increased 3.3 percent, as unseasonably warm temperatures boosted demand for air conditioning.
Here's a chart of the top-line data:
Industrial production has regained most of its pandemic losses.
Advance estimates of U.S. retail and food services sales for August 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $618.7 billion, an increase of 0.7 percent (±0.5 percent) from the previous month, and 15.1 percent (±0.7 percent) above August 2020. Total sales for the June 2021 through August 2021 period were up 16.3 percent (±0.5 percent) from the same period a year ago. The June 2021 to July 2021 percent change was revised from down 1.1 percent (± 0.5 percent) to down 1.8 percent (±0.2 percent).
Here's a chart of the data:
Retail sales peaked a few months ago and have since trended lower. They are still above pre-pandemic levels.
Economic conclusion: overall, the data is positive. However, there are concerns that we could see a slowdown in the fourth quarter, as seen in this chart from the Atlanta Fed:
This was also hinted at in the latest Beige Book. But even if the slows, the economy will still be growing.
Whenever I look at an ETF that tracks a broader index, I compare its performance to its peers. Here, that would be the IWM, IJH, SPY, QQQ, OEF, and DIA.
|IWC's Relative Performance||1st||1st||7th||7th||1st|
The IWC's are either the best or worst performer.
For our purposes, two charts are relevant.
The above chart only has the 200-day (in magenta), 50-day (in green), 20-day (in red), and 10-day (in blue) EMAs. This allows us to only look at the short, intermediate, and long-term trends without the daily noise of price bars.
The IWC has been trending sideways since April.
After gaining nearly 200% since the Spring of 2020, the IWC has consolidated gains.
Hold your current position, but don't add to it at this time.