The stock market correction may not be over until it becomes clear the Fed will hold back from tightening further -- either by skipping a hike in December or suggesting it will be the last for a while. Upcoming inflation data may very well hold the clue. While the risks are for softer-than-consensus wage inflation data this week, the October Core CPI (due November 14) may be more important in influencing market expectations regarding the Fed.
At this point, Fed officials are adhering to their expectation of gradual tightening into 2020, including a December hike and 3 hikes in 2019. However, cracks in their determination are beginning to appear, with the acknowledgement by some that inflation remains subdued and potential economic growth could be stronger than expected. There seems to be growing consensus among officials that future rate decisions will be more data-dependent than in the recent past -- implying not necessarily a 25 BP hike per quarter.
Last week, news stories headlined Fed Vice Chair Clarida reaffirming a commitment for more rate hikes. In fact, most of his speech, academic in nature, focused on reasons not to hike. He emphasized the improvement in productivity growth, the flatness of the Phillips Curve and a lower-than-thought natural rate of unemployment to suggest inflation will remain soft. He argued for further rate hikes based on the idea that keeping the funds rate below r* -- the theoretical and unobservable neutral rate consistent with steady growth and inflation -- would raise the risk of higher inflation in the future.
The problem with r* is that it is a "steady state" concept -- economic growth and inflation are assumed to be independent of initial conditions (e.g., current state of the economy, stringency of bank lending standards) and exogenous factors (e.g., fiscal policy, foreign growth) among other idealistic assumptions. The Fed's econometric model of the US economy has run steady-state simulations, but this required some tinkering and many years of simulation for the model to reach that state. In the real world, initial conditions and exogenous factors matter. Currently, fiscal stimulus would argue that r* should be higher than otherwise, while softer foreign growth would argue for the opposite. Bank lending standards, while easing over the past few quarters, remain tight enough to suggest the funds rate should not be raised further.
In a recent speech, Cleveland Fed President Mester (a hawk) almost admits that forward guidance on the course of the funds rate is no longer relevant. She says with the funds rate now close to its neutral level, rate decisions will be more data dependent than in the recent past.
Similarly, Atlanta Fed President Bostic thinks the Fed is still a few rate hikes away from a neutral level. But, he "intends to weigh the risk of acting too swiftly and choking off the
expansion against the risk of having the economy overheat and get into a
situation with rising inflation and inflation expectations that would
necessitate a muscular policy response. My thinking will be informed by
the evolution of the incoming data and from what I'm able to glean from
my business contacts."
All the recent Fed speeches have turned cautious because of a recognition that inflation remains subdued despite the strong economic growth and tight labor market. Upcoming wage/price inflation data may very well be the clue to whether the Fed will pull back from its forward guidance on the funds rate at the December FOMC Meeting. This week's inflation data risks underscoring this recognition:
Monday -- Consensus reasonably looks for a soft 0.1% m/m September Core PCE Deflator. The y/y is expected to fall to 1.9% from 2.0%.
Wednesday -- Consensus looks for a speedup in the Q318 Employment Cost Index to 0.7% (q/q) from 0.6% in Q218. This risks being too high. While Average Hourly Earnings (AHE) sped up by 0.1% pt in Q318, it is possible Benefits slowed. For example, news reports made much of Amazon's boosting its minimum wage, but not all mentioned that it cut bonus payments simultaneously. Bonuses impact the ECI's Benefits component but have no impact on AHE.
Thursday -- Consensus looks for +1.2% (q/q, saar) Q318 Unit Labor Costs. This estimate risks being too high. ULC is calculated as the difference between Compensation/Hour and Productivity. Roughly a near-trend 3.0% increase in Compensation/Hour looks reasonable, based on the GDP data. But, Productivity could come in higher than the consensus estimate of an above-trend 2.1%. A flattish ULC would be important for two reasons. First, it is the broadest measure of labor costs. Second, it would show that the pickup in nominal wage inflation just reflects improved productivity and thus is not inflationary. Clarida made a big point about this in his speech.
Friday -- Consensus looks for a high 0.3% m/m in October AHE. Risk is to the downside. Calendar considerations point to 0.1% m/m. Also, composition shifts could have contributed to the high 0.3% September print and could disappear in October.
Next week's real-side data should not be soft enough to convince the Fed to stop tightening, even if they print below consensus.
Wednesday -- ADP Estimate risks printing below the consensus estimate of +189k m/m, as there could be payback for ADP exceeding Payrolls in September. October ADP reversed its September relationship to Payrolls in each of the past 6 years. So, the risk is that whatever prints will underpredict Friday's Nonfarm Payrolls.
Thursday -- Evidence is mixed with regard to the October Mfg ISM, but favors an increase. The Richmond Fed fell, but this might be catch-up to the Mfg ISM after it diverged in direction in September. Also, Richmond Fed could have been impacted by the hurricane. Mfg ISM does not tend to be affected much by weather factors. The Phil Fed Mfg Index (pushed ahead one month) points to an increase. It correctly predicted the direction of Mfg ISM in each of the past 6 months.
Friday -- The consensus estimate of +190k m/m October Nonfarm Payrolls risks being too high. While the factors that held down September Payrolls -- an unwinding of summer jobs or drag from the hurricane -- should either fall out or reverse in October, there could be a drag from another hurricane in October. A lot of attention will be placed on the Unemployment Rate, after it fell to 3.7% in September. Unfortunately, there is no reliable evidence regarding the risks surrounding the consensus estimate of a steady 3.7% in October.
Sunday, October 28, 2018
Sunday, October 21, 2018
Volatility Masks Market Stabilization, But Not Over Yet
Believe it or not, the stock and Treasury markets stabilized last week, helped by a softening in almost all the US economic data releases. The S&P 500 Index was flat over the week. The 10-year Treasury yield stayed below the 3.23% high of early October. Sharp volatility masked the stabilization, some of it sparked by an incorrect reaction to the FOMC Minutes and by fear of a Chinese economic slowdown. Portfolio Managers' window dressing and program trading may have exacerbated the volatility, as well. Fears of the Fed and global growth, as well as portfolio adjustments, could continue to buffet the markets into November.
A year-end stock market rally, nevertheless, can happen. Two fundamental triggers to watch for are lower y/y Core PCE Deflator inflation that could persuade the Fed to skip a December hike and an easing in the China/US trade war at a meeting of their leaders in late November.
Although the stock and Treasury markets reacted negatively to the September FOMC Meeting Minutes, the latter, in fact, had little, if any, new news in them. The Fed remains committed to a gradual approach to tightening, and whether they diverge from that path is data dependent. The only update is the Fed staff's slight adjustments in their projections of near-term Real GDP Growth in response to the September hurricanes -- slight downward to Q318 and slight upward revision to Q418. Weak data in September need to rebound in October-November to confirm their forecast. This coming week's data are for September, and therefore not important if they are weak.
An economic slowdown outside of the US could hold the clue as to whether the Fed will stop tightening earlier than planned. There are two elements. First, a slowdown in foreign economic growth hurts US exports. Even though the US does not export a lot to China, a slowdown in the latter impacts EM countries that supply materials to it. Their demand for US goods, in turn, would decline. To be sure, a US economic slowdown to under 3% is what the Fed wants. So, unless growth looks like it will slow much more, say to under 2%, a slowdown in Real GDP Growth may not stop the Fed from tightening further.
Second, slower foreign growth holds down US inflation -- and this could be the more important influence on Fed policy. Relatively weak growth abroad helps lift the dollar. It also depresses prices and wages abroad. And, it puts downward pressure on commodity prices. US import prices should fall, not only holding down US inflation directly but also indirectly through competitive pressures on domestic prices and wages. These forces would come on top of a possible slowdown in owners' equivalent rent, as suggested in the September CPI.
A decline in the y/y for the Core PCE Deflator to below the Fed's 2.0% target could persuade officials to stop tightening. The Core PCE Deflator needs to average less than 0.177% m/m from September through December to pull down the y/y to under 2.0%. There is a good chance the next report, for September (due October 29), will meet this requirement. The October and November CPI will be released before the December 18-19 FOMC Meeting.
Further ahead, a meeting between Trump and Chinese President Xi Jinping on November 29 at a G-20 summit in Buenos Aires is reported to be shaping up, according to Politico. This could put a lid on fears of a worsening trade war, helping the stock market to recover even before the meeting.
A year-end stock market rally, nevertheless, can happen. Two fundamental triggers to watch for are lower y/y Core PCE Deflator inflation that could persuade the Fed to skip a December hike and an easing in the China/US trade war at a meeting of their leaders in late November.
Although the stock and Treasury markets reacted negatively to the September FOMC Meeting Minutes, the latter, in fact, had little, if any, new news in them. The Fed remains committed to a gradual approach to tightening, and whether they diverge from that path is data dependent. The only update is the Fed staff's slight adjustments in their projections of near-term Real GDP Growth in response to the September hurricanes -- slight downward to Q318 and slight upward revision to Q418. Weak data in September need to rebound in October-November to confirm their forecast. This coming week's data are for September, and therefore not important if they are weak.
An economic slowdown outside of the US could hold the clue as to whether the Fed will stop tightening earlier than planned. There are two elements. First, a slowdown in foreign economic growth hurts US exports. Even though the US does not export a lot to China, a slowdown in the latter impacts EM countries that supply materials to it. Their demand for US goods, in turn, would decline. To be sure, a US economic slowdown to under 3% is what the Fed wants. So, unless growth looks like it will slow much more, say to under 2%, a slowdown in Real GDP Growth may not stop the Fed from tightening further.
Second, slower foreign growth holds down US inflation -- and this could be the more important influence on Fed policy. Relatively weak growth abroad helps lift the dollar. It also depresses prices and wages abroad. And, it puts downward pressure on commodity prices. US import prices should fall, not only holding down US inflation directly but also indirectly through competitive pressures on domestic prices and wages. These forces would come on top of a possible slowdown in owners' equivalent rent, as suggested in the September CPI.
A decline in the y/y for the Core PCE Deflator to below the Fed's 2.0% target could persuade officials to stop tightening. The Core PCE Deflator needs to average less than 0.177% m/m from September through December to pull down the y/y to under 2.0%. There is a good chance the next report, for September (due October 29), will meet this requirement. The October and November CPI will be released before the December 18-19 FOMC Meeting.
Further ahead, a meeting between Trump and Chinese President Xi Jinping on November 29 at a G-20 summit in Buenos Aires is reported to be shaping up, according to Politico. This could put a lid on fears of a worsening trade war, helping the stock market to recover even before the meeting.
Sunday, October 14, 2018
US Economic Data Need to Confirm a Slowdown to Stablize Markets
Stocks likely need to form a base after bouncing on Friday. So, they will probably remain volatile for the next several weeks, with lower earnings guidance representing downside risk. Whether stocks resume their uptrend could depend on a softening in upcoming US economic data. Along with continuing low inflation, the latter would support the Fed's gradual approach to tightening and stabilize Treasuries.
Upcoming US economic data have to soften enough to confirm the Fed's expectation of a slowdown in Real GDP Growth to under 3% beginning in Q418. Confirmation would reaffirm the Fed's commitment to a gradual tightening path. And, Fed Chair Powell's unintended hint of more aggressive tightening would be left in the past. The Atlanta Fed model's forecast may take on more importance than normal. It typically gets the markets' attention, even though there is not enough data for a reliable forecast until the first month of the subsequent quarter. The model's first estimate of Q418 Real GDP Growth should be released at the start of November. Currently, it projects 4.2% for Q318 Real GDP.
A softening in US economic data needs to pull down the model's estimate to below 3.0% for Q418, but not so much as to raise the risk of a sharp slowdown to under 2%. The latter would lift recession probabilities. Friday's report of a dip in the Mid-October Michigan Consumer Sentiment Index to 99.0 from 100.1 in September was a start in the right direction. In the coming week, the markets may find relief if the data -- covering the consumer, housing and manufacturing sectors -- are weaker than their prior 3-month averages (see table below). Consensus estimates are mixed relative to these averages.
Meanwhile, inflation remains subdued. The Core CPI risks being held down by a slowdown in housing rent, as it was in September. In addition, underlying import prices remain flattish. Friday's report of a 0.5% m/m jump in September Import Prices was misleading with regard to the inflation outlook. Non-Fuel Import Prices were 0.0% and Non-Auto Consumer Goods Prices fell 0.1%. Even more importantly from the Fed's view, the longer-term 5-year Inflation Expectations in the Michigan Consumer Sentiment Survey fell back to a low of 2.3% in mid-October. Moreover, evidence of slower real growth should weigh on commodity prices ahead.
This Week's US Economic Data
Consensus Estimate Prior 3-Month Average
Retail Sales 0.6% m/m 0.16% m/m
Ex Auto Retail Sales 0.4% 0.51%
Ex Auto/Gas Sales na 0.35%
Industrial Production 0.2% 0.46%
Manufacturing Output na 0.47%
Housing Market Index 67 67.3 level
Housing Starts 1.228 Mn 1.211 Mn Units
Housing Permits 1.229 Mn 1.281 Mn Units
Initial Claims 212k level 209.5k 4-wk avg
Continuing Claims 1.665 Mn level 1.656 Mn 4-wk avg
Phil Fed Mfg Index 22.9 20.2 level
Existing Home Sales 533k Units 535k Units
Follow me on Twitter at @cjslyce. I may comment on just-released US economic data or other market developments. Note I commented on the CPI, Claims and Import Prices last week.
Upcoming US economic data have to soften enough to confirm the Fed's expectation of a slowdown in Real GDP Growth to under 3% beginning in Q418. Confirmation would reaffirm the Fed's commitment to a gradual tightening path. And, Fed Chair Powell's unintended hint of more aggressive tightening would be left in the past. The Atlanta Fed model's forecast may take on more importance than normal. It typically gets the markets' attention, even though there is not enough data for a reliable forecast until the first month of the subsequent quarter. The model's first estimate of Q418 Real GDP Growth should be released at the start of November. Currently, it projects 4.2% for Q318 Real GDP.
A softening in US economic data needs to pull down the model's estimate to below 3.0% for Q418, but not so much as to raise the risk of a sharp slowdown to under 2%. The latter would lift recession probabilities. Friday's report of a dip in the Mid-October Michigan Consumer Sentiment Index to 99.0 from 100.1 in September was a start in the right direction. In the coming week, the markets may find relief if the data -- covering the consumer, housing and manufacturing sectors -- are weaker than their prior 3-month averages (see table below). Consensus estimates are mixed relative to these averages.
Meanwhile, inflation remains subdued. The Core CPI risks being held down by a slowdown in housing rent, as it was in September. In addition, underlying import prices remain flattish. Friday's report of a 0.5% m/m jump in September Import Prices was misleading with regard to the inflation outlook. Non-Fuel Import Prices were 0.0% and Non-Auto Consumer Goods Prices fell 0.1%. Even more importantly from the Fed's view, the longer-term 5-year Inflation Expectations in the Michigan Consumer Sentiment Survey fell back to a low of 2.3% in mid-October. Moreover, evidence of slower real growth should weigh on commodity prices ahead.
This Week's US Economic Data
Consensus Estimate Prior 3-Month Average
Retail Sales 0.6% m/m 0.16% m/m
Ex Auto Retail Sales 0.4% 0.51%
Ex Auto/Gas Sales na 0.35%
Industrial Production 0.2% 0.46%
Manufacturing Output na 0.47%
Housing Market Index 67 67.3 level
Housing Starts 1.228 Mn 1.211 Mn Units
Housing Permits 1.229 Mn 1.281 Mn Units
Initial Claims 212k level 209.5k 4-wk avg
Continuing Claims 1.665 Mn level 1.656 Mn 4-wk avg
Phil Fed Mfg Index 22.9 20.2 level
Existing Home Sales 533k Units 535k Units
Follow me on Twitter at @cjslyce. I may comment on just-released US economic data or other market developments. Note I commented on the CPI, Claims and Import Prices last week.
Thursday, October 11, 2018
The Market Crash and Today's US Economic Data
Today's US economic data -- CPI and Claims -- should help stabilize the Treasury and stock market, based on my analysis of what was behind their plunges in the past few days.
Many commentators are trying to figure out why the Treasury and stock markets plunged over the past few days. My view is that both reflected a loss of confidence in the Fed's economic/policy forecast, sparked by Fed Chair Powell's imprecise comment about the level of the "neutral" funds rate last week. The Fed's forecast calls for a slowing in economic growth in response to a gradual tightening of monetary policy over the next couple of years. Fed Chair Powell's comment was taken by the markets to believe Fed officials don't believe their forecast and think a more aggressive tightening will be needed. Ironically, today's low September CPI supports the Fed's view that inflation is tame and will remain so -- in line with my view, as well.
The markets need to see evidence that Real GDP Growth is slowing to regain confidence in the Fed's outlook. In coming weeks, moderate economic data are good, strong data are bad for the stock market. Today's report on Initial Claims was good from this perspective. Initial Claims rebounded to 214k, putting it above the 206k September average. Continuing Claims have stabilized in the past 3 weeks. Claims are the most important high-frequency indicator of the economy and they need to stabilize to suggest economic growth is moderating toward trend.
Many commentators are trying to figure out why the Treasury and stock markets plunged over the past few days. My view is that both reflected a loss of confidence in the Fed's economic/policy forecast, sparked by Fed Chair Powell's imprecise comment about the level of the "neutral" funds rate last week. The Fed's forecast calls for a slowing in economic growth in response to a gradual tightening of monetary policy over the next couple of years. Fed Chair Powell's comment was taken by the markets to believe Fed officials don't believe their forecast and think a more aggressive tightening will be needed. Ironically, today's low September CPI supports the Fed's view that inflation is tame and will remain so -- in line with my view, as well.
The markets need to see evidence that Real GDP Growth is slowing to regain confidence in the Fed's outlook. In coming weeks, moderate economic data are good, strong data are bad for the stock market. Today's report on Initial Claims was good from this perspective. Initial Claims rebounded to 214k, putting it above the 206k September average. Continuing Claims have stabilized in the past 3 weeks. Claims are the most important high-frequency indicator of the economy and they need to stabilize to suggest economic growth is moderating toward trend.
The most important part of low 0.1% m/m Sept Core CPI is the sharp slowdown in owners' equivalent rent. The latter may be catching up to news reports of slowing housing rent. A lower trend in OER will hold down inflation ahead.
Sunday, October 7, 2018
Implications of Last Week's Sell-Offs in Treasuries and Stocks
The unexpected run-up in longer-term Treasury yields and the consequential drop in stocks late last week may have been an overreaction to Fed Chair Powell's comment, but they have put both markets on the defensive immediately ahead. The September CPI (due Thursday) and the Q318 earnings season (begins this week) will be important. The CPI report may very well be in line with consensus, but a possible uptick in the y/y could spark selling in the markets. Corporate earnings risk exceeding consensus again, but forward guidance could be a problem. In the background, uncertainty regarding the mid-term elections and their implications could weigh on stocks over the next few weeks. A year-end rally in stocks is still likely.
Treasury Market Sell-Off
Last week's sell-off in the Treasury market is said to have been sparked by a comment made by Fed Chair Powell in an interview that the funds rate is "a long way from neutral at this point, probably." I believe the market may have overreacted to it for two reasons. First, the comment may have been a "rookie" mistake, since Powell should not have been so specific regarding a concept that he, himself, has admitted is not measurable. Moreover, Fed officials should realize their idea of magnitude may differ from that of the markets and thus refrain from opining on it if they do not state an estimated level. Chicago Fed President Evans puts the neutral funds rate at 3.0-3.2%, for example. Second, the Fed already specified its expectation for the funds rate's path in its Economic Projections and Dot Chart. This is not new news for the markets.
Ironically, the markets' sell-offs could reinforce the Fed's intention to follow a gradual tightening path. Besides not wanting to precipitate even larger sell-offs, Fed officials are not likely to be frustrated that their approach is not having an effect. In contrast, back in 1994, Greenspan became frustrated that his 25-BP measured pace of tightening was not lifting longer-term yields. As a result, he shocked the markets with 50-75 BP hikes -- that had the desired market effects.
The markets' real problem would be any further fiscal stimulus coming out of Washington -- the most likely being a push for infrastructure spending. The latter would likely "require" the markets to move to crowd out other spending, given the labor market is near or at full employment -- yields would rise and stocks fall. This scenario is probably more an issue for next year. But, there could be talk of doing such spending after the elections, possibly a bi-partisan effort in Congress.
September Core CPI
The 0.2% m/m consensus estimate of the September Core CPI looks reasonable. Some of the components, like apparel, that fell in August could decline again, thanks to bi-monthly sampling. The stronger dollar should continue to exert some downward pressure on prices, while it is probably too soon to see any boost from the second round of tariffs on Chinese goods. (The reported problems being experienced by Chinese companies from the tariffs suggest the latter are not being fully passed through.) Further pass-through of higher oil prices, such as in airfares, is possible, however. The y/y of the Core CPI should be 2.2-2.3%, versus 2.2% in August -- depending on rounding. Consensus is 2.3%. An uptick could be a problem for both Treasuries and stocks.
Q318 Corporate Earnings
Corporate earnings should be strong in Q318, possibly exceeding the 21.5% y/y consensus estimate calculated by Thompson Reuters (versus 24.9% in Q318). But, companies may lower future guidance to reflect the impact of tariffs and stronger dollar. Domestic fundamentals remained strong in the quarter. US Real GDP Growth on a y/y basis sped up, incorporating the 4.1% q/q Atlanta Fed model estimate for Q318. Oil earnings should have accelerated. And, domestic profit margins should have been stable, as prices (measured by the Core CPI) kept pace with Average Hourly Earnings. However, earnings from abroad likely weakened, because of the stronger dollar and softer economic activity.
Markit
Eurozone Real GDP Oil Prices Trade-Weighted Dollar AHE Core CPI PMI
[ y/y percent change ] (level)
Q117 2.0 +65.3 2.3 2.7 2.2 55.6
Q217 2.2 +13.1 3.1 2.5 1.8 56.8
Q317 2.3 +6.0 -1.9 2.5 1.7 57.4
Q417 2.5 +12.7 -4.1 2.5 1.7 59.7
Q118 2.8 +21.5 -6.6 2.7 1.9 59.1
Q218 2.9 +41.0 -1.8 2.7 2.2 55.9
Q318 3.2 +45.4 +5.1 2.8 2.3 54.3
Treasury Market Sell-Off
Last week's sell-off in the Treasury market is said to have been sparked by a comment made by Fed Chair Powell in an interview that the funds rate is "a long way from neutral at this point, probably." I believe the market may have overreacted to it for two reasons. First, the comment may have been a "rookie" mistake, since Powell should not have been so specific regarding a concept that he, himself, has admitted is not measurable. Moreover, Fed officials should realize their idea of magnitude may differ from that of the markets and thus refrain from opining on it if they do not state an estimated level. Chicago Fed President Evans puts the neutral funds rate at 3.0-3.2%, for example. Second, the Fed already specified its expectation for the funds rate's path in its Economic Projections and Dot Chart. This is not new news for the markets.
Ironically, the markets' sell-offs could reinforce the Fed's intention to follow a gradual tightening path. Besides not wanting to precipitate even larger sell-offs, Fed officials are not likely to be frustrated that their approach is not having an effect. In contrast, back in 1994, Greenspan became frustrated that his 25-BP measured pace of tightening was not lifting longer-term yields. As a result, he shocked the markets with 50-75 BP hikes -- that had the desired market effects.
The markets' real problem would be any further fiscal stimulus coming out of Washington -- the most likely being a push for infrastructure spending. The latter would likely "require" the markets to move to crowd out other spending, given the labor market is near or at full employment -- yields would rise and stocks fall. This scenario is probably more an issue for next year. But, there could be talk of doing such spending after the elections, possibly a bi-partisan effort in Congress.
September Core CPI
The 0.2% m/m consensus estimate of the September Core CPI looks reasonable. Some of the components, like apparel, that fell in August could decline again, thanks to bi-monthly sampling. The stronger dollar should continue to exert some downward pressure on prices, while it is probably too soon to see any boost from the second round of tariffs on Chinese goods. (The reported problems being experienced by Chinese companies from the tariffs suggest the latter are not being fully passed through.) Further pass-through of higher oil prices, such as in airfares, is possible, however. The y/y of the Core CPI should be 2.2-2.3%, versus 2.2% in August -- depending on rounding. Consensus is 2.3%. An uptick could be a problem for both Treasuries and stocks.
Q318 Corporate Earnings
Corporate earnings should be strong in Q318, possibly exceeding the 21.5% y/y consensus estimate calculated by Thompson Reuters (versus 24.9% in Q318). But, companies may lower future guidance to reflect the impact of tariffs and stronger dollar. Domestic fundamentals remained strong in the quarter. US Real GDP Growth on a y/y basis sped up, incorporating the 4.1% q/q Atlanta Fed model estimate for Q318. Oil earnings should have accelerated. And, domestic profit margins should have been stable, as prices (measured by the Core CPI) kept pace with Average Hourly Earnings. However, earnings from abroad likely weakened, because of the stronger dollar and softer economic activity.
Markit
Eurozone Real GDP Oil Prices Trade-Weighted Dollar AHE Core CPI PMI
[ y/y percent change ] (level)
Q117 2.0 +65.3 2.3 2.7 2.2 55.6
Q217 2.2 +13.1 3.1 2.5 1.8 56.8
Q317 2.3 +6.0 -1.9 2.5 1.7 57.4
Q417 2.5 +12.7 -4.1 2.5 1.7 59.7
Q118 2.8 +21.5 -6.6 2.7 1.9 59.1
Q218 2.9 +41.0 -1.8 2.7 2.2 55.9
Q318 3.2 +45.4 +5.1 2.8 2.3 54.3
Friday, October 5, 2018
September Employment Report Impacted by Some Temporary Factors
The September Employment Report confirms above-trend economic growth -- but some of the components likely reflect temporary factors.
A more-than-seasonal drop in summer jobs may very well have been behind the below-consensus +134k m/m increase in Payrolls. There were declines in Retail and Leisure jobs, possibly as students returned to school. The Household Survey showed a decline in teen-age employment.
A drop in low-paid summer jobs, as well as calendar considerations, likely contributed to the 0.3% m/m increase in Average Hourly Earnings. Unwinding of these effects should help hold down AHE next month. Calendar considerations point to a 0.1% m/m increase in October. However, the y/y would rise to 2.9-3.0% because AHE fell m/m in October 2017.
The drop in the Unemployment Rate to 3.7% from 3.9% in August confirms above-trend growth. A broader measure of labor market utilization, however, rose to 7.5% from 7.4%, suggesting there is still slack in the labor market.
A more-than-seasonal drop in summer jobs may very well have been behind the below-consensus +134k m/m increase in Payrolls. There were declines in Retail and Leisure jobs, possibly as students returned to school. The Household Survey showed a decline in teen-age employment.
A drop in low-paid summer jobs, as well as calendar considerations, likely contributed to the 0.3% m/m increase in Average Hourly Earnings. Unwinding of these effects should help hold down AHE next month. Calendar considerations point to a 0.1% m/m increase in October. However, the y/y would rise to 2.9-3.0% because AHE fell m/m in October 2017.
The drop in the Unemployment Rate to 3.7% from 3.9% in August confirms above-trend growth. A broader measure of labor market utilization, however, rose to 7.5% from 7.4%, suggesting there is still slack in the labor market.
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