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Look forward to September 2, 2019 week: Data on employment will help set expectations for the next FOMC meeting

The September 2 week starts off with a holiday on Monday with stock and bond markets closed. Although it is not a particularly busy week for data releases, many are of labor market data that are of first importance for the upcoming FOMC deliberations on September 17-18. Also of prime interest for Fed policymakers is the next Beige Book.

Some of the data reports will be delayed a day by the presence of a holiday on Monday. This includes the weekly reports on retail sales and the ADP National Employment report.

At the top of the pile of labor market data is the Employment Situation for August at 8:30 ET on Friday. The underlying pace of job gains has been slowing. It remains to be seen if August payroll numbers further this trend. The average monthly gain for the second quarter was up 157,000. The July increase was 164,000, but a weak August report could pull the third quarter to-date average down. Surveys of activity in the manufacturing and service sectors both point toward slower hiring. However, some of this is simply a lack of available workers, especially those with specific skills. The unemployment rate is likely to stay on or near the 3.7% of June and July.

The ADP National Employment Report for August is at 8:15 ET on Thursday, only a day before the Employment Situation. Most forecasters will be hesitant to alter their outlook based on the ADP number for private payrolls even if it sends a strong signal in either direction. While it usually leads the direction of private payroll changes in the government data, it sometimes can miss – and miss big.

The Challenger report on layoff intentions for August is at 7:30 ET on Thursday. In spite of indications of slowing economic growth, most businesses have only cut back or delayed hiring, not begun to layoff workers.

Initial jobless claims for the week ended August 31 at 8:30 ET on Thursday will catch the first wave of end-of-summer layoffs as the vacation season starts to wind down and students return to school.

The ISM Manufacturing Index at 10:00 ET on Tuesday and the ISM Non-Manufacturing Index at 10:00 ET on Thursday will be anxiously watched for indications of further slowing in their respective sectors. The regional data has been mixed, and neither is expected to sink below the 50-mark. However, continued signs of softening in activity in either or both are particularly concerning as fears of a recession are elevated.

The Fed’s Beige Book at 14:00 ET on Wednesday will get a close read on anecdotal evidence about conditions across the 12 Districts. I think the Beige Book can provide a clear warning when the US economy is slipping in – or out – of a recession.  The report doesn’t line up neatly with the high frequency data given it is released 8 times a year. Looking back it has fallen off from 100% of Districts reporting growth in early April to 92% in late May to 83% in early July. Earlier in the year it was 83% in early January and 83% in late February. Exogenous events – such as severe weather or a government shutdown – can push the share of Districts reporting growth down for one or two periods. However, if there is any further decline for a third report in a row, I would be concerned that the economy is indeed on the cusp of a downturn.

The data on international trade in goods and services for July is at 8:30 on Wednesday. This will be the first hint of the direction of net exports for the advance report on third quarter GDP when it is released on Wednesday, October 30 at 8:30 ET. In the meantime, it will provide some revisions that will shape the third and final estimate of second quarter GDP for that report at 8:30 ET on Thursday, September 26.

New orders for factory goods at 10:00 ET on Thursday will probably see nondurables orders decline due to lower prices for petroleum and chemicals, while the durable goods component will repeat is modest gain due to an increase in orders for aircraft.

 

 

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