DE | Weekly | Global Markets | Reassuring Jobs Report Closes A Bumpy Week—Labor Market O.K., Economy O.K. – 10/7/19

Posted October 7, 2019 by rvillareal

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Reassuring Jobs Report Closes A Bumpy Week

—Labor Market O.K., Economy O.K.

Poor Data Then Relief

After a slew of sour data on business sentiment and activity from ISM PMI releases and increased political turmoil surrounding U.S. President Trump, the past week ended on a reassuring note with the September Employment Report.

A picture of solid, although softening, labor market, an implied economy Q3 track over 2%, annualized, a falling unemployment rate and stable, perhaps lower, wage and price inflation showed a pretty picture for the economy—one of Prosperity, although unevenly distributed.

Labor Market Report—A Kind of “Goldilocks”?

No Boom—No Bust! A falling unemployment rate, a tight labor market pulling in previously discouraged and long-term unemployed, but still too low inflation for the Federal Reserve 2% objective, presents more a picture of early Expansion than late Expansion soon to be followed by Recession. And, a preemptive U.S. central bank, lowering interest rates to keep the economy expanding and to protect it from downside risks, with more to-come, also augers well.

Nonfarm Payroll jobs increased 136,000 and there was an upward revision to 157,000 for August. Household Survey persons worked posted a huge gain, 391,000, with the unemployment rate falling to a 50-year low of 3.5%. Wage inflation, however, slowed to a 15-month low of 2.9% y/y, flat m/m, from 3.2% y/y last month. The Labor Force Participation Rate (LFPR) held at 63.2%, a six-month high and the Employment Population ratio rose to 61%, signs that workers previously discouraged or not finding work now are doing so, and a sign of a cyclically strong economy.

Consumer Fundamentals Still Good…

The labor market continues to be supportive of resilience in consumer spending, but the probability of a Recession has risen due to deterioration in business investment and hiring, assessed at 15% by DE. With trade policy uncertainty and recent political events weighing on employment and other decision making, the September ISM Manufacturing PMI fell to 47.8 from 49.1 in August. More worrisome, negative sentiment appeared to be transmitted to Services Sectors, with the ISM Non-Manufacturing Survey dropping sharply to a three-year low of 52.6, down from 56.4 in the previous month. DE odds on Recession climbed to 15% from 10% as a result.

But Risks Remain and the Federal Reserve Will Preempt

DE continues to see a 25-bps reduction in the federal funds rate in the fourth quarter. The likelihood for the Federal Reserve to cut the federal funds rate in October has lessened some after the employment report. But an October reduction will remain on the table if preemption overtakes the Federal Reserve and depending on upcoming data releases and trade negotiation progress.

Still Lots To Worry About and No Exit Yet from Correction

For the upcoming week, trade negotiations between the U.S. and China remain a substantial risk to the global economic outlook and will take center stage.

Early earnings reports as the reporting season begins have demonstrated damage to company profits through supply chain disruptions on elevated trade tensions. As risks of a steepening economic slowdown continue to rise with disappointing activity and sentiment data, both U.S. and China may have signaled willingness to call a truce on trade tensions with postponement of tariff hikes and tariff exemptions on certain goods. However, a marginal deal or a pause on increase of tariffs will probably be the best the world can get next week, as the White House puts trade negotiations on a back burner amid impeachment inquiry.

(Allen Sinai)

Table 1 – Coming Week’s Key Indicators and Events

	Release	Time (EDT)	DE / Consensus	Comment
U.S.	Powell Remarks Powell Speech FOMC Minutes Sep CPI Oct UM Sent.	Mo 1:00 pm Tu 1:50 pm We 2:00 pm Th 8:30 am Fr 10:00 am	1.7% / 1.8% y/y -2.4 to 90.8 / -1.2	No surprise from Powell. Headline CPI dampened by higher gas prices last year. Consumer confidence expected to fall on political turmoil.
Ger     Fra	Aug Fac. Ord. Aug IP   Aug IP	Mo 2:00 am Tu 2:00 am   Th 2:45 am	-0.6% / -0.8% m/m 0.2% / -0.4% m/m   0.6% m/m	Industrial output to rebound modestly in August due to a recovery in PMI readings in the month; industrial activity set to plunge in September.
Chn	Cxn PMI Serv.	Mo 9:45 pm	+0.1 to 52.2 / -0.1	Services PMI is likely to edge up with upbeat Caixin manufacturing gauge.
Jpn	Aug Hh Spend. Aug Labor Earn. Aug Core Ord.	Mo 7:30 pm Mo 7:30 pm Th 7:50 pm	1.5% m/m -1.2% y/y -3.2% m/m	Consumption remains supported ahead of sales-tax hike, while earnings slow further on decreasing bonuses.