The past week has seen continued improvement, with the case growth rate down to new lows and case growth below 30,000 per day for the first time since June 21. The pandemic remains under control, and things are still getting better. The control measures are working.

My colleague Sam Millette, senior investment research analyst on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

Last week’s economic highlights included important releases on business confidence, international trade, and the employment market. This week will be relatively quiet due to the holiday, with releases scheduled on inflation and the weekly initial jobless claims.

After a record-setting August, we are now seeing some market turbulence in September. Markets were down significantly yesterday and are headed lower today. What’s going on?

Today, I'd like to provide an update on the coronavirus, including the economic and market implications. We had good news on the medical front, as the pandemic remains under control. Case growth is down, and the case growth rate remains well below the lows seen in mid-June. Still, testing continues to be an area of weakness, and the possibility that school reopenings will lead to more infections is a concern.

The good news is that the pandemic remains under control, with continued improvement. Case growth has gone down further over the past two weeks, and the case growth rate remains below the lows seen in mid-June. The control measures are working.

After a great month like August, expectations and momentum are high, and you could reasonably expect to see another great month ahead. That scenario happens, and it is certainly what we are seeing in the first days of September. But taking a detailed look at last month’s results suggests some reasons for caution. Let’s start with where the returns came from.

August was a very good month for the markets. The Nasdaq and S&P 500 reached new highs, and investors continued to move back into the markets. We also saw infection numbers decline, and the economic recovery started to regain strength. Consumer confidence looks to have bottomed, and wage growth has ticked up again, supporting spending growth.

Last week was jam-packed with economic news, with reports covering wide swaths of the economy released. Both major measures of consumer confidence for August revealed mixed results. This week will be busy once again, with updates focusing on business confidence and the August employment report.

There has been a great deal of commentary surrounding the change in how the Fed is going to manage inflation. As announced yesterday, the Fed will be using a “flexible form of average inflation targeting.” This means that rather than the prior objective—to keep inflation below 2 percent at all times—the Fed will now aim for an average inflation level of around 2 percent. Since inflation is well below 2 percent and has been for some time, markets are interpreting this announcement as the Fed will be willing to let inflation run hot (i.e., above 2 percent) for some time to restore the average. Cue the worries about hyperinflation.