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Look behind at September 30, 2019 week: Powell says the economy is in a ‘good place’, but the data suggests there are reasons for concern

A look behind at the September 30 week actually doesn’t need to go much farther than the September Employment Situation on Friday. It reflected the complexity of the present situation. Also on Friday, Chair Jerome Powell reiterated the Fed’s view that the US economy is “in a good place” even as the FOMC is prepared to do what is necessary to maintain the expansion. The payroll numbers would mostly support this outlook with moderate increases and an unemployment rate unexpectedly hitting a 50-year low at 3.5%. There are jobs out there and the available workforce is stretched thin enough to bring workers in from the margins, as well as absorb new ones just entering. However, there was a hint that conditions are less competitive with a decline in the pace of rises in average hourly earnings and a flat workweek. Additionally, a greater share of new jobs was from government where things are gearing up for the 2020 Census. Private payrolls have lost upward momentum and were relatively modest for the past two months in a row.

Other employment data during the week included the ADP National Employment Report for September which for a second month in a row showed private payroll gains rising more quickly than in the government numbers. Still, it was far less of a miss than in the August report. With revisions to the prior month, it pointed to an underlying trend of around 140,000-150,000, a moderate pace of job adds, if less spectacular than in 2018. The BLS data for private payrolls points to a more modest trend of around 115,000-125,000. Neither would suggest any cause for immediate concern about the expansion’s ability to support the labor market.

The insured rate of unemployment held at 1.1% in the September 21 week of the initial jobless claims report for the week ended September 28. This was a second week in a row at a record low and echoes the performance of the national unemployment rate and tautness of labor market resources.

Layoff activity was limited in the weekly data with new claims up 4,000 to 219,000 as of the week ended September 28. The monthly Challenger report showed layoff intentions were down 22.3% to 41,557 in September from 53,480 in August and were off 24.8% from the 55,285 in September 2018. However, the year-to-date total was 464,869, up substantially from the 366,058 for the January-September 2018 period. The contraction in the retail sector that dominated 2018 is slowing in 2019. Layoffs are coming from other sectors like automotive and technology where companies are trying to move higher paid workers off the books through restructuring and voluntary severance to make room for lower paid new employees. A smaller but notable number of layoffs are planned related to trade and tariff policy. Increasingly, it is a response to economic conditions that are driving layoff plans rather than business decisions for efficiency and profitability. Importantly, outside of plans for hiring seasonal workers, the Challenger report showed intentions to add workers were relatively few and limited to a narrow spectrum of industries.

The ISM Manufacturing Index remained below the 50-mark for a second month in a row in September, falling to 47.8 from 49.1 in August and was at its lowest since 45.8 in June 2009. It is safe to say that the factory sector has slipped into recession, if a shallow and brief one so far. However, another decrease – if it reached around the 45-mark – could signal that the broader economy is entering one as well. A worrisome indication that that might be the case is the ISM Non-Manufacturing Index which fell to 52.6 in September from 56.4 in August and was at its lowest since 51.4 in August 2016. This is still in expansionary territory and extended a string of growth to 116 months. But the underlying trend is unevenly moving downward. If orders and activity don’t pick up, services will be providing less support for growth at a time when other sectors are softening as well.

At least through September, consumer spending could keep the US economy growing. Sales of new motor vehicles for September were above expectations at 17.2 million units (SAAR), with a slightly larger share going to pricier vehicles in the light trucks category than in more economical passenger cars. Business spending might continue to lag. Purchases of heavy trucks fell to 501,000 in September, its lowest in 10 months.

On Friday, the New York Fed announced that the overnight repurchase operations of at least $75 billion would continue through Monday, November 4. The New York Fed also announced a series of term operations – mostly of 14-days – through the end of October. The operations will ensure that there is not another cash crunch as there was in mid-September and that the potential for another does not develop in the fourth quarter.


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