October 04, 2019
The ISM Manufacturing Index fell further into contraction in September, while the Non-Manufacturing Index slowed (consistent with a continued expansion in the overall economy, but at a slower pace). The Employment Report was a mixed bag. Nonfarm payrolls rose by 136,000 in the initial estimate for September, with a net upward revision of +45,000 to July and August. The gain was a bit less than expected, but not as bad as feared. Private-sector payrolls rose by 114,000 (a +119,000 average for 3Q19 – half of the +236,000 pace seen in 3Q18). Average hourly earnings were unchanged (+2.9%), but rose 0.2% for production workers (+3.5% y/y). The unemployment rate edged down to 3.5%.
We’ve often had contractions in manufacturing without a downturn in the overall economy and strong household sector fundamentals should support consumer spending growth over the near term. However, the weak ISM manufacturing data renewed fears of “recession,” dropping the major stock market indices and sending bond yields lower.
Next week, the economic calendar thins out. There may be some interest in the Consumer Price Index, but the report rarely surprises. More importantly, on Tuesday, Fed Chairman Jerome Powell will speak at the annual conference of the National Association for Business Economics and could provide some clues about future policy decisions. The topic of his speech is “Data Dependence in an Evolving Economy.” At the September 17-18 meeting of the Federal Open Market Committee, officials were divided on the appropriate path for monetary policy. The minutes of that meeting (Wednesday) should delve into the differences.
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