This Week's US Economic Data Should Help Stocks

The stock market rally should continue for the next few weeks.  The Kavanaugh confirmation vote is at least a week off as the FBI conducts its investigation, and, except for possible implications for the midterm elections, is not market relevant in any case.  The trade dispute with China is a longer-term issue, which the market correctly quickly discounts after knee-jerk reactions to headlines.  Trade agreements with Canada (tonight?) and EU are more likely to be reached sooner than that with China.  And, this week's key US economic data should confirm strong growth.  

Monday's release of the September Mfg ISM risks a counter-consensus increase, based on the higher Richmond Fed Mfg Index (having correctly predicted the m/m direction of Mfg ISM each month this year).  Even the consensus expectations of a dip to 60.3 from 61.3 would keep the Index at a very high level.  Consensus also looks for a dip in the Prices component, which would support the Fed's view that inflation will remain in check -- and possibly temper any softening reaction in Treasury prices to the strong real-side data.

An increase in the Mfg ISM would raise the risk of a counter-consensus increase in the September Non-Mfg ISM, due Wednesday.  The two moved in the same direction in each of the past 6 months.

The September Employment Report should confirm above-trend economic growth, but hint at some moderation -- not out of line with the Fed's forecast of a slowdown in Q418.  The +185k m/m consensus estimate for Payrolls is below the +207k m/m average so far this year.  And, there is downside risk coming from the ending of summer jobs for students that exceeds the seasonal expectation.  The flooding from Hurricane Florence probably had little, if any, impact on Payrolls, since it hit the Carolinas at the end of the Payroll Survey Week.  Consensus also looks for +185k for the ADP Estimate.  The ADP Estimate does not show any bias in predicting September Payrolls in the past few years.

The consensus estimate of a decline in the Unemployment Rate to 3.8% from 3.9% in August is reasonable.   The Rate was 3.85%, so even a slight dip would round down the headline print to 3.8%. An increase in Labor Force Participation could keep the Rate steady at 3.9%.  This possibility gains credence by the strength of the jobs components of the Conference Board's Consumer Confidence Survey -- people could return to the labor force as job opportunities become widely seen.   An increase in Labor Force Participation is a positive for both stocks and Treasuries, as it dampens the inflationary implications of strong economic growth.

Consensus looks for a slowdown in Average Hourly Earnings to +0.3% m/m from the high +0.4% in August.  A 0.3% print would argue the trend has ratcheted up a bit.  AHE averaged 0.24% m/m so far this year, rising 0.3% or more half the time.  Calendar considerations point to a 0.3% print for September, although they may not be reliable after missing in August.  It is possible the high August print resulted from an ending of relatively low-paid summer jobs.  This might be the case in September, as well.  If this is the reason, AHE should slow if not in September than in subsequent months.  For September, the y/y would dip to 2.8% from 2.9% with a 0.3% m/m print.