Weekly Macro Minute

“Look, I have appointed by name Bezalel son of Uri, son of Hur, of the tribe of Judah. I have filled him with God’s Spirit, with wisdom, understanding, and ability in every craft to design artistic works in gold, silver, and bronze, to cut gemstones for mounting, and to carve wood for work in every craft.”

Exodus 31:2-5, CSB

After He had delivered the Israelites from the Egyptians, one of the first things the Lord commanded them to do was make a tabernacle for Him. The Tabernacle was God’s portable earthly dwelling place, used for worship by the Israelites from their exodus from Egypt to the construction of Solomon’s Temple centuries later. It was a massive, elaborate, tent-like structure, crafted and furnished with valuable materials such as gold, silver, bronze and fine linen. In chapter 31, the Lord declared to Moses that He had designated Bezalel to lead the construction of this magnificent structure, noting that He had filled him with wisdom to get the job done.

This is the first appearance of the word “wisdom” in the Bible, and interestingly, it had nothing to do with what we might think of as intellectual prowess or philosophical insight. Instead, it refers to getting one’s hands dirty with hard work: sawing, hammering, forging, sewing and building.

We learn two things about true wisdom from this passage. First, at its core, wisdom is simply knowing how to obey God. Whether He has assigned someone the role of pastor, parent, spouse, leader, follower or Tabernacle-builder, a wise person knows how to carry out the Lord’s will in that context. A wise person knows how to do what the Lord asks him or her to do.

Second, wisdom is a gift from God. Age and experience don’t bring true wisdom. Sometimes those two things simply mean that we’ve had a lot of practice at messing up in life. The Lord gives us the wisdom to obey through His Word, His Spirit, and His people. James wrote, “Now if any of you lacks wisdom, he should ask God…and it will be given to him” (James 1:5). This week, pray for wisdom.

Across the Markets

The S&P 500® Index faltered in the first week of August, falling over 2% as higher yields and a U.S. debt downgrade created headwinds too big to overcome and supported a generally risk-off mood on Wall Street. Fitch downgraded the U.S.’s long-term debt rating from AAA to AA+, citing “a steady deterioration in standards of governance over the last 20 years” and based upon “expected fiscal deterioration over the next three years” given a high and growing government debt burden. This event, along with strong economic data and expectations for higher debt issuance, conspired to send yields higher on a global basis. The 10-year U.S. Treasury yield surged from 3.95% to nearly 4.20% before paring losses on Friday following the jobs report to end the week at 4.05%. The 2s/10s inversion lightened but remains at a material 0.73%. Meanwhile, 30-year fixed mortgage rates again topped 7% in a fresh challenge to home ownership. This resurgence in rates is occurring as the Census Bureau reported this week the lowest second quarter homeowner vacancy rate ever recorded (with data going back to 1956).

Higher fuel prices and an impending restart to student debt payments could challenge consumers. Fuel prices have been steadily gaining (up $0.30 over the past month) as crude oil prices are back in a bull market and at their highest levels since November. OPEC is key to the recent uplift, as the group signaled maintaining its current cuts while Saudi Arabia stood by its voluntary cutback of 1 million barrels extending into September.

Outside the U.S., markets generally followed suit with equities falling across most major European and Asian markets, while yields shifted notably higher. The BoE raised rates to 5.25% (a 15-year high) and warned that rates are likely to stay high for some time despite economic weakness. In Japan, 10-year yields rose to a nine-year high of 0.65% after the Bank of Japan tweaked its yield curve control the prior week. The People’s Bank of China offered more pledges to support the economy — and real estate development in particular, a very needed measure as new home sales reportedly plunged 33% in July from a year earlier (and that reference point would be during the COVID lockdowns).

In the Economy

On the surface, the downgrade of U.S. debt this week does very little to impact the appeal of U.S. Treasuries — what other options does one have? However, with U.S. debt-to-GDP over 120% and a rising net interest cost, fiscal stress will eventually be a serious problem we will have to deal with.

Friday’s employment report was the most market-moving economic news of the week, with payroll gains a less-than-expected 187,000 in July with negative 49,000 in prior revisions. In contrast to moderating payroll gains, however, the household employment survey saw employment reach a new all-time high and, as such, the unemployment rate unexpectedly dropped to 3.5% on a growing labor force.

While the employment report was generally positive, it also revealed that wage inflation remains sticky. Hourly earnings rose 0.4% month-over-month and 4.4% year-over-year, which remains well above levels consistent with the Fed’s 2% inflation objective. Nevertheless, odds of further rate hikes declined below 20% this week, in part due to comments on Friday from a couple of Federal Reserve board members trying to move the narrative to a focus on how long the Fed holds at current restrictive rates. Officials may also be taking some solace in a surge in reported productivity this week, as nonfarm productivity advanced at a 3.7% annualized rate in the second quarter, helping to curb growth in labor costs (which could help the inflation outlook).