Good Thursday Afternoon from your Hometown Lender,
A busier day today with a cluster of data.
None of which is remotely more important than tomorrow’s jobs report. Things appear to be slowing, which helps interest rates. Ahead of the Federal Reserve’s meeting in two weeks, we learned yesterday from the Fed’s Beige Book for September that only three of the twelve Fed Districts saw slight growth at the tail-end of the summer, while the others experienced either flat or declining activity. Consumer spending weakened, manufacturing declined in most areas, and commercial construction and real estate saw mixed results. Employment remained steady with modest wage growth, and prices rose only slightly.
In other Fed news…
The Philadelphia Fed has begun searching for a new President to replace President Harker, whose term ends in June.
Today, Job cuts in August from Challenger, Gray & Christmas kicked off today’s economic calendar. Per its report, U.S.-based employers announced 75,891 cuts in August, a 193% increase from the 25,885 cuts announced one month prior. It is up 1% from the 75,151 cuts announced in the same month in 2023. For the year, companies have announced 536,421 job cuts, down 3.7% from 557,057 announced through August of last year. We’ve also received a weaker-than-expected ADP employment (+99k), which was expected to come in at 150k after 122k in July. Weekly jobless claims (227k; continuing claims 1.838 million) and productivity and final Q2 unit labor costs (on the light side) have also been released.
The last piece of news today was the ISM Non-Manufacturing which did come in as expected. Bonds are teetering on both sides of unchanged today. It is tempting to float into tomorrow’s report. I will say it is ill advised, as the expected payroll number is only 163k and that is not too hard to beat. A beat will hurt bonds as markets will see the Fed only cutting .25 in two weeks vs the .50 that markets are increasingly pricing in.
For the sake of rates, I am hopeful the number is low and lower than 163k. That of course is not great for the economy which I think is already in a recession. None the less floating into the report is gambling and not investing.
A quick primer on tomorrow from Bloomberg:
Tomorrow is Jobs Day and by now you know that a lot is, apparently, riding on this number. It seems to be basically a coinflip as to whether we get a 25 or 50 basis-point cut at the upcoming Fed meeting later this month. This non-farm payrolls report could be the decider.
One of the debates going on right now is whether “it’s different this time” with respect to the Sahm Rule. Last month, when the unemployment rate jumped to 4.3%, the rule was officially triggered. And every other time this happened post-World War II it meant that a recession was already under way. One reason to think that might not be the case this time — as Claudia Sahm has herself discussed — is that the rise in the unemployment rate is due to a low pace of hiring, as opposed to a rise in the pace of firing.
In other words, it’s possible that the economy is still growing, but that we’re seeing a big influx in the number of people looking for jobs (immigration, reversal of pandemic era trends etc.) and that’s pushing the number up.
But regardless of whether that’s the case, we know a couple of things.
- 1) Several labor market indicators have clearly softened.
- 2) If we’re going to absorb the increase in the size of the total labor force, then we need to see a faster pace of job creation.
So to some extent, the big question is — recession or not — whether we’ll see a hiring rise.
And on this note, yesterday we got the JOLTS report for July, so that’s already stale news. And it did show a slight uptick in the hiring rate. And it also showed an uptick in the Quits Rate. But the total number of job openings came in way below expectations at 7.67 million vs. expectations of 8.1 million. Also, the previous month’s opening figure was revised downwards. 2-year yields dropped right at 10 a.m. when the report came out, as traders priced in more Fed easing on the back of the data.
Again, it’s JOLTS and it’s stale. But right now, we’re in a “low hiring, low firing mode” as Richmond Fed President Tom Barkin put it in a recent interview. He added that this is unlikely to persist very long. One of the two is likely to pick up. And with the number of job openings falling as much as it as, that obviously increases the concern that the low hiring component is not likely to reverse soon.
Stay safe and make today great!
