A look forward at the September 30 week sees the last business day of the third quarter on Monday bookended by the October employment numbers on Friday. In between, data on activity in manufacturing and services will provide a sense if the US economy is treading water with modest growth or if it is sinking further.
The September Employment Situation at 8:30 ET on Friday will not see an immediate impact from the UAW strike at GM. The Establishment Survey half of the report will reflect conditions through the survey reference period ended on Saturday, September 14. The strike did not start until after that. However, the payroll data may confirm the moderation in the pace of job gains seen in private payrolls for August to 96,000 after 131,000 in July. Given the slowdown in the economy and increase in uncertainty in the outlook, businesses may defer some hiring, opt for temporary workers, and/or offer only part-time employment. On the other hand, recent increases in government payrolls are likely to continue as the federal machine gears up for the 2020 Census. In the Household Survey, the unemployment rate could rise above the 3.7% in September if the level of employment does not grow and/or the number of unemployed turns higher.
The ADP National Employment Report for September at 8:15 ET on Wednesday will be viewed with a dose of skepticism after it’s big miss in August when the level for private payrolls was up 195,000. That could see some downward revision on fresher data while the September number will probably lose some of the height in the prior month as well.
The Challenger report on layoff intentions in September at 7:30 ET on Thursday probably won’t be as high as the 53,480 in August, but the GM strike may mean some firms announced layoff plans. September often sees an increase as governments reach the end of the fiscal year and that may be a factor this year as well. Overall, businesses are reluctant to lose skilled workers unless necessary. I would look for relatively few layoffs across sectors until November when end-of-year business planning often makes decisions about the right size of workforces and companies will have better information about whether a downturn is indeed near – or here. Hiring intentions in September generally see the first wave of seasonal plans for retailers and transportation. Retail work for the holiday may be scarcer in 2019 for stores, while transportation should continue to need extra hands for deliveries from on-line shopping.
Initial jobless claims for the week ended September 28 at 8:30 ET on Thursday could see a surge higher as the ripple effects of the UAW strike at GM are felt among suppliers and subcontractors for the automaker. These should be temporary. However, there’s always the danger that once a layoff takes effect, workers will move on to other jobs or the job may not come back once the work stoppage is over. The insured rate of unemployment in the September 21 week could edge back up after the record low of 1.1% in the prior week.
The ISM Manufacturing Index for September at 10:00 ET on Tuesday may not manage to climb back above the 50-mark after the 49.1 in August. Regional surveys of manufacturing activity have so far pointed to a lack of upward momentum for the month with soft new orders, falling backlogs, and sluggish employment.
The ISM Non-Manufacturing Index for September at 10:00 ET on Thursday may dip from the 56.4 in August. However, even if slightly below that reading, conditions in the service sector continue along the lines of modest expansion. The impacts from trade policy and broader economic slowdown have cut into growth for services, just not to the same extent as for the factory sector.
The Dallas Fed’s Texas Manufacturing Outlook for September is at 10:30 ET on Monday. The District’s Service Sector Outlook for September is at 10:30 ET on Tuesday. Both have a decent correlation with their respective ISM counterparts. Still, at this late stage, expectations for the national reports should be fairly well set in place.
Data on factory orders for August at 10:00 ET on Thursday will add the nondurables component to the durables numbers already reported as up 0.2% in the month. Falling prices for petroleum could bring the total for all factory orders down somewhat for August, especially if the there is downward revision in any of the durables sectors.
The Federal Reserve Bank of New York will continue with its overnight repurchase operations daily of at least $75 billion from Monday, September 30 through Thursday, October 10. This should be more than long enough to get markets through the end of quarter cash demands from the markets, and “help maintain the federal funds rate within the target range. The next FOMC meeting is on Tuesday and Wednesday, October 29-30. The communications blackout period will go into effect at midnight on Saturday, October 19 and last through midnight on Thursday, October 31. In the meantime, the September 30 week will include comments from a number of Fed policymakers. Markets will be listening carefully for any signal of the direction of interest rate policy. However, the necessity to engage in a series of highly-subscribed repurchase and term operations brings balance sheet policy back into the spotlight. Markets will also be alert to the potential for increasing again increasing the size of the balance sheet or changes to reserve requirements.
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