The stock market may begin to recover this Thanksgiving week, a week in which stocks historically tend to move up. Moreover, the macroeconomic data keep open the door for a December Fed rate cut. And, even if the Fed decides to keep policy steady at the upcoming FOMC Meeting, the macro evidence has positive implications for corporate
profits. So, a year-end rally can't be ruled out.
The September Employment Report does not rule out a December rate cut. Although job growth was strong, other parts of the Report were soft. Moreover, Unemployment Claims point to renewed softening in jobs in October and possibly November.
The +119k m/m increase in Nonfarm Payrolls in September may better reflect the unevenness of m/m job gains than a solid increase in demand for labor. It follows a downward-revised -4k in August (was +22k), so the 2-month average is 58k, in line with the +55k m/m Q225 average. (The m/m average was +111k in Q125). The trend in job growth remains modest and below the pace needed to keep the Unemployment Rate steady (115k). Indeed, the Unemployment Rate rose to 4.4%, a new high for the move up. Soft demand for labor also is reflected in the flat Nonfarm Workweek at a low 34.2 Hours level. It was 34.3 Hours in July.
Although Total Hours Worked edged up 0.1% m/m in September, the Q325 average is 0.3% (annualized) below the Q225 average. This is after they rose 1.5% (q/q, saar) in Q225. If the Atlanta Fed Model’s 4.2% estimate of Q325 Real GDP Growth is right, it looks like Productivity Growth was strong that quarter — good for corporate profits and for holding down inflation.
The 0.2% m/m increase in Average Hourly Earnings (AHE) also is good news for the inflation fight. But, it probably just reflects volatility after an upward-revised +0.4% m/m in August (was +0.3%). The Q325 average of AHE is +0.30% m/m. Although slightly above the +0.27% in Q225, it is consistent with the Fed’s 2% inflation target, taking account of productivity growth.
The Claims data point to weaker Payroll gains in October and possibly November. Continuing Claims rose by 31k between the September and October Payroll Survey Weeks and are up another 17k since then (with one more week to go to get the November Payroll Survey Week). Note that the November Employment Report is scheduled for release on December 16 — which is after the December 9-10 FOMC Meeting
This week's US economic data are expected to confirm the view of moderate growth with inflation held in check. Consensus looks for the delayed September Retail Sales Report to post moderate gains after strong prints in August. And, it expects the underlying September PPI to slow a bit from an already modest August. September Durable Goods Orders are expected to slow to a 0.2-0.3% pace for Total and Ex Transportation, putting them back in line with the Q225 pace after very strong July-August prints. The risk is that Orders will surprise on the upside.
Durable Goods Orders were particularly strong during the summer. They show that business equipment demand picked up sharply (seen in Core Durable Goods, which are nondefense capital goods excluding civilian aircraft). Business equipment spending looks like it could be a driving force for overall economic growth ahead. In contrast, Defense Orders fell during the summer, which might have had to do with the September-end of the FY2025 federal budget. If so, they should rebound now that the FY2026 budget has been approved. Defense could be another positive catalyst for growth ahead, as orders catch up.
Orders
( average m/m percent change)
Jul-Aug H125 2024
Durable Goods Ex Transportation 0.6 0.2 0.1
Core Durable Goods 0.6 0.2 0.1
Defense Capital Goods -4.3 2.7 2.6
Defense Ex Aircraft -15.6 8.3 2.8
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