Baker Market Update 2025-08-08

After last week’s barrage of data and market moving releases, this week felt rather tame. This week delivered a mixed bag of economic data that left financial markets searching for direction, with factory orders taking center stage early in the week. Personally, I am focused on college football which starts in a meager 15 days!

Last week's disappointing jobs report and major downward revisions to prior months' data prompted President Trump to terminate Bureau of Labor Statistics Commissioner Erika McEntarfer on Friday. This made Thursday's Initial Jobless Claims particularly significant for policy makers as well as market watchers. Jobless claims ticked up to 226k, which is 7k more than the prior week's reading and above analyst expectations of 222k. Continuing claims also saw a slight increase in tandem with initial jobless claims suggesting that company layoffs are increasing meanwhile hiring processes across the board are slowing down. The overall employment picture remains in question, and cracks are beginning to show in certain sectors. This drove both the stock market and bond market into a spin at the end of last week, but that has slightly rebounded over the last 5 days. The S&P 500 saw a modest pick up and 1.84% and the 10 Year US Treasury is up a little over 6 basis points to 4.28%.

Monday's factory orders data painted a concerning picture, declining 4.8% against a prior 8.2% gain in May. The weakness wasn't entirely surprising given the manufacturing headwinds that companies have been facing due to global supply chains shifts following the Trump Administration tariffs. Durable goods orders followed suit, falling 9.3% and reinforcing concerns about business investment appetite. This manufacturing weakness suggests companies remain cautious about capital expenditures amid ongoing economic uncertainty.

Wednesday brought the services sector into focus with ISM Services PMI coming in slightly higher than analyst expectations at 55.7 (est. 55.2) remaining in expansionary territory. This stability in services activity provides some reassurance that the broader economy maintains momentum despite manufacturing weakness.

The week's productivity and unit labor cost data released Thursday showed non-farm productivity rising 2.0% while unit labor costs increased 1.5%. This combination is generally favorable for the Fed's inflation outlook, as productivity gains can help absorb wage pressures without necessarily translating to higher prices. However, the sustainability of these productivity improvements remains questionable given the broader economic headwinds.

Turning to our northern neighbor, Canada’s labor market showed fresh signs of strain, adding just 6,000 jobs in July, well below expectations of a 20,000 gain. The unemployment rate ticked higher to 6.3%, marking its highest level in over two years and signaling that labor slack is beginning to build north of the border. Wage growth also moderated, with average hourly earnings slowing to 4.5% year-over-year, down from June’s 5.1% pace. This weakening trend adds to concerns that the Bank of Canada may have limited runway to maintain its current policy stance, especially as domestic consumption shows early signs of fatigue. While not yet flashing recessionary alarms, the Canadian jobs report does little to reassure markets already on edge about the strength of global labor conditions.

All eyes turn to next week’s slurry of data which features Retail Sales, Consumer Sentiment, PPI and the Consumer Price Index release, which will serve as a critical gauge for policymakers assessing progress on their dual mandate.

Have a great weekend everyone!