Besides important corporate earnings announcements, this week contains 3 main macro-economic items: /1/ the October 29-30 FOMC Meeting, /2/ Q319 Real GDP release, and /3/ the October Employment Report. All three should have at most transitory effects on the stock market.
Optimism on the US/China trade negotiations should override the significance of these items and continue to support the market leading up to a possible signing of an agreement at the Asia-Pacific Economic Cooperation meetings on Nov. 16 and 17. The market will likely react positively to a "phase 1" agreement even if it does not contain much concession on the part of the Chinese. All that is needed may be a sense that the worst result, a total breakdown between the two countries, has been averted. After this sense is fully built into the market, the focus will likely shift to the outcome of the House Impeachment Inquiry. This could weigh on the stock market until there is clarity over the final resolution -- which could be positive or negative (see my prior blog).
FOMC Meeting'
Some market economists, like those at Goldman Sachs, expect the same result as I had outlined in last week's blog. The Fed will likely cut by 25 BPs, but suggest it will be the last for awhile. GS economists believe the Statement will drop the phrase "will act as appropriate to sustain the expansion." While this expectation is a long shot -- since it is difficult to see the cost to the Fed of keeping the phrase and, in fact, it is highly appropriate -- its elimination would likely elicit a negative knee-jerk negative reaction by the stock market. Such reaction could reverse if Powell emphasizes that its removal represents the Fed's more optimistic outlook as "downside risks" seem to be ending.
But, if the Fed drops the phrase and appears desirous of keeping policy steady for the near future, the burden of reacting to the ups and downs of the economic outlook will fall increasingly on the medium- to longer-end of the Treasury yield curve. Longer-term yields will react more to the strength or weakness of upcoming US economic data.
Q319 Real GDP
Both consensus and the Atlanta Fed model have essentially the same forecast for Q319 Real GDP -- 1.7% consensus and 1.8% Atlanta Fed. This growth rate is in line with the Fed's 1.8-2.0% estimate of the longer-run trend growth rate. The Unemployment Rate supports this forecast -- the Rate was 3.63% in both Q219 and Q319, suggesting GDP growth was near trend in Q319. Of course, if the Fed's view of longer-trend trend is too low, as is quite possible, then there is upside risk to the 1.7-1.8% Q319 forecast. Moreover, with the Rate falling to 3.5% in September, it raises the possibility that economic growth picked up above the longer-run trend as Q3 ended.
October Employment Report and Mfg ISM
This Report could be difficult to demonstrate that economic growth has sped up, as it will be impacted by the GM strike. The strike will subtract 46k workers directly from Nonfarm Payrolls. Workers laid off in supplier industries as a result of the strike will subtract, as well, but the number will not be readily identifiable. These spillover layoffs could add to the Unemployment Rate, as well. The Nonfarm Workweek could be held down, too. And, the absence of the relatively high-paid strikers could push down Average Hourly Earnings. This would be on top of calendar considerations, which argue for a low 0.1% m/m print for October AHE. The y/y would be 2.8-2.9%, versus 2,9% in September.
The October Mfg ISM also could be negatively impacted by the GM strike, although the survey is not generally dominated by the motor vehicle industry. Consensus looks for an uptick to 48.8 from 47.8 in September. The evidence is mixed. The Markit Mfg PMI rose, but the Phil Fed Mfg Index fell.
Sunday, October 27, 2019
Sunday, October 20, 2019
Potential Stock-Supportive Developments, But...
While much uncertainty still hangs over key issues, potential for positive outcomes should keep the stock market in a range over the next few weeks. Agreements on Brexit and the US/China Trade Negotiations may be reached by late-October to mid-November. Johnson is still aiming for a Brexit agreement before October 31 and Trump wants a US/China agreement signed at the Asia-Pacific Economic Cooperation meetings that take place in Chile on Nov. 16 and 17. Even as uncertainty regarding these outcomes persist, the possibility of a Fed rate cut at the October 29-30 FOMC Meeting should support the market. These developments, however, may not be enough to allow stocks to move decisively through resistance, as the Impeachment Inquiry moves toward resolution.
With Fed officials still citing downside risks, but saying policy decisions will be made "meeting to meeting," the most important new information leading up to the FOMC Meeting will probably be the Markit PMIs. The Euro and German Flash estimates, due this Thursday, likely need to move close to 50 to raise the possibility officials will change their assessment of downside risks. And, officials may take their cue on the significance of downside risks or the need to cut further by the Treasury yield curve, which has built in a 25 BP cut in October (see my blog of September 8).
Even if the Fed cuts by 25 BPs in October, the market may very well take it to be the last one for awhile. The Treasury yield curve looks to have built in a low probability of further cuts for the next few years. As a result, any anticipatory run-up in stocks may be given back if the Fed signals the cut is likely to be followed by a pause. However, the yield curve is still pointed down slightly over the next 5 years, probably reflecting in part the possibility of an economically disruptive election of a Democrat president. (see my blog of September 22).
US economic data related to manufacturing, like this week's September Durable Goods Orders and the following week's October Employment Report, may be negatively impacted by the GM strike. So, weak prints should be discounted. While the GM strike continues to be a drag this month, it will reverse and be a positive for growth once workers return to their jobs -- motor vehicle production will climb to make up for the lost output during the strike.
The Impeachment Inquiry could weigh on stocks if it gathers steam. Headlines and predictions of impeachment or not may become market-important. If it looks like the Senate will not go along, then the House deliberations and vote will be meaningless unless they are seen affecting the probability of the 2020 elections. If the Senate looks like it will vote against Trump, it will be a big negative for the stock market.
With Fed officials still citing downside risks, but saying policy decisions will be made "meeting to meeting," the most important new information leading up to the FOMC Meeting will probably be the Markit PMIs. The Euro and German Flash estimates, due this Thursday, likely need to move close to 50 to raise the possibility officials will change their assessment of downside risks. And, officials may take their cue on the significance of downside risks or the need to cut further by the Treasury yield curve, which has built in a 25 BP cut in October (see my blog of September 8).
Even if the Fed cuts by 25 BPs in October, the market may very well take it to be the last one for awhile. The Treasury yield curve looks to have built in a low probability of further cuts for the next few years. As a result, any anticipatory run-up in stocks may be given back if the Fed signals the cut is likely to be followed by a pause. However, the yield curve is still pointed down slightly over the next 5 years, probably reflecting in part the possibility of an economically disruptive election of a Democrat president. (see my blog of September 22).
US economic data related to manufacturing, like this week's September Durable Goods Orders and the following week's October Employment Report, may be negatively impacted by the GM strike. So, weak prints should be discounted. While the GM strike continues to be a drag this month, it will reverse and be a positive for growth once workers return to their jobs -- motor vehicle production will climb to make up for the lost output during the strike.
The Impeachment Inquiry could weigh on stocks if it gathers steam. Headlines and predictions of impeachment or not may become market-important. If it looks like the Senate will not go along, then the House deliberations and vote will be meaningless unless they are seen affecting the probability of the 2020 elections. If the Senate looks like it will vote against Trump, it will be a big negative for the stock market.
Sunday, October 13, 2019
Phase 1 on China, Brexit and the Fed/Stock Market
A Fed rate cut at the October 29-30 FOMC Meeting is still a good possibility, even with Trump's "Phase 1" deal with China and movement toward Brexit. The latter two move toward ending the downside risks to the economy identified by Fed Chair Powell. But, the main consequence of these risks -- global economic slowdown -- remains.
Evidence that global growth has turned up may be needed to persuade the Fed to stop easing. There has been some tentative evidence of improvement in Chinese manufacturing survey data. But, any bottoming in China has not been strong enough to help its major trading partners. European manufacturing surveys, particularly Germany's, continued to weaken through September, as have those for South Korea and Japan. This week, consensus looks for further weakness in Germany's October ZEW Economic Sentiment Index and China's Q319 Real GDP reports.
The short-end of the Treasury market is still building in a 25 BP rate cut in October. A sell-off there would be the clearest signal that evidence has firmed enough to forestall a Fed rate cut.
This background should be supportive of the stock market. If the short-end of the curve sells off, it will send a message that the economic risks have improved significantly. If it does not sell off, the likelihood of a Fed rate cut should cushion and limit the market effects of any negative corporate earnings news. Moreover, the easing of threats from US/China and Brexit suggest some of the earnings weakness is temporary. And, the lower threats work to weaken the dollar, which make earnings abroad more valuable in dollar terms. Even though some analysts point out that the US still may impose new tariffs in December, this is probably too far ahead to be a near-term concern.
Last week's speech by Powell made some important points that bear on monetary policy and politics. He discussed 3 items -- /1/ The possibility that Productivity is higher than now measured. /2/ The US macro-effects of oil prices. /3/ Measuring labor market tightness. The Productivity issue impacts both monetary policy and political discussions.
Productivity Measurement
Powell focused on the inability of GDP and thus Productivity to capture the technical impact of the internet and free applications on it. Fed staff work so far developed a simple way of measuring it, using volume of data flow. It implies that GDP Growth is understated by about 0.5% pt per year since 2007 and by 0.25% pt/year in the prior couple of decades. A redefinition of GDP along these lines would make the data more in line with common sense observations about the impact of the internet on people's lives.
A redefinition of GDP has significance for the political discussion of income growth and distribution. Much political angst has spewed forth on the failure of the median household income to rise with economic growth. This problem will be at least partly eliminated by capturing the technical advances of the internet. Since the boost is larger after 2007, the inter-temporal comparisons will improve.
A redefinition of GDP is not important for monetary policy. This is because both measured and potential GDP Growth should be boosted by the same amount. So, the relationship between the two would not change. In other words, measures of labor market and economic slack would be unaffected.
More important for monetary policy is the possibility that the trend in productivity growth has improved. Powell acknowledged the speedup in Productivity Growth over the past couple of years. He said the Fed is still not sure if it will persist. But, if officials begin to be convinced that it will, this would be a big positive for the stock and Treasury markets. It would mean the Fed's view of Potential GDP Growth is higher than the current 1.8-2.0% estimate. So, officials would be more willing to permit stronger GDP Growth than now. It also would likely lead the Congressional Budget Office to lift its estimate of longer-run growth, which would make budget projections less troublesome.
Powell highlighted the positive effects of Greenspan's insight into the implications of the technological revolution of the late 1990s -- suggesting it is an important insight into current Fed thinking. It suggests the Fed will be very tolerant of stronger growth until a noticeable pickup in inflation occurs.
"Chairman Alan Greenspan famously argued that the United States was experiencing the dawn of a new economy, and that potential and actual output were likely understated in official statistics. Where others saw capacity constraints and incipient inflation, Greenspan saw a productivity boom that would leave room for very low unemployment without inflation pressures. In light of the uncertainty it faced, the Federal Open Market Committee (FOMC) judged that the appropriate risk‑management approach called for refraining from interest rate increases unless and until there were clearer signs of rising inflation. Under this policy, unemployment fell near record lows without rising inflation, and later revisions to GDP measurement showed appreciably faster productivity growth."
Oil Prices
Powell acknowledged that the surge in US domestic oil production means that a rise/fall in oil prices will have a little impact on US GDP. This is in contrast to the past when the US was a large net consumer of oil. Then, for example, a rise in oil prices had a significant negative impact on the economy as the consumer was hit by essentially a large tax hike. Now, the hit to the consumer would be offset by a price-induced increase in domestic oil production.
To be sure,there still could be net negative effects on the US economy through the exchange rate -- although not mentioned by Powell. Higher oil prices boost world demand for dollars, since oil is traded in dollars. An increase in dollar demand would result in a higher dollar exchange rate, which would hurt US net exports.
Measuring Labor Market Tightness
Powell said the Fed is working with ADP to construct a new measure of job growth. It was more accurate regarding job losses during the Great Recession than official data at the time. But, he was not more specific than that. He acknowledged that the recent BLS estimate of the benchmark revision to Payrolls would lower m/m Payroll growth. But, he said the pace would still be strong enough to tighten the labor market:
"Based on a range of data and analysis, including our new measure, we now judge that, even allowing for such a revision, job gains remain above the level required to provide jobs for new entrants to the jobs market over time."
Evidence that global growth has turned up may be needed to persuade the Fed to stop easing. There has been some tentative evidence of improvement in Chinese manufacturing survey data. But, any bottoming in China has not been strong enough to help its major trading partners. European manufacturing surveys, particularly Germany's, continued to weaken through September, as have those for South Korea and Japan. This week, consensus looks for further weakness in Germany's October ZEW Economic Sentiment Index and China's Q319 Real GDP reports.
The short-end of the Treasury market is still building in a 25 BP rate cut in October. A sell-off there would be the clearest signal that evidence has firmed enough to forestall a Fed rate cut.
This background should be supportive of the stock market. If the short-end of the curve sells off, it will send a message that the economic risks have improved significantly. If it does not sell off, the likelihood of a Fed rate cut should cushion and limit the market effects of any negative corporate earnings news. Moreover, the easing of threats from US/China and Brexit suggest some of the earnings weakness is temporary. And, the lower threats work to weaken the dollar, which make earnings abroad more valuable in dollar terms. Even though some analysts point out that the US still may impose new tariffs in December, this is probably too far ahead to be a near-term concern.
Last week's speech by Powell made some important points that bear on monetary policy and politics. He discussed 3 items -- /1/ The possibility that Productivity is higher than now measured. /2/ The US macro-effects of oil prices. /3/ Measuring labor market tightness. The Productivity issue impacts both monetary policy and political discussions.
Productivity Measurement
Powell focused on the inability of GDP and thus Productivity to capture the technical impact of the internet and free applications on it. Fed staff work so far developed a simple way of measuring it, using volume of data flow. It implies that GDP Growth is understated by about 0.5% pt per year since 2007 and by 0.25% pt/year in the prior couple of decades. A redefinition of GDP along these lines would make the data more in line with common sense observations about the impact of the internet on people's lives.
A redefinition of GDP has significance for the political discussion of income growth and distribution. Much political angst has spewed forth on the failure of the median household income to rise with economic growth. This problem will be at least partly eliminated by capturing the technical advances of the internet. Since the boost is larger after 2007, the inter-temporal comparisons will improve.
A redefinition of GDP is not important for monetary policy. This is because both measured and potential GDP Growth should be boosted by the same amount. So, the relationship between the two would not change. In other words, measures of labor market and economic slack would be unaffected.
More important for monetary policy is the possibility that the trend in productivity growth has improved. Powell acknowledged the speedup in Productivity Growth over the past couple of years. He said the Fed is still not sure if it will persist. But, if officials begin to be convinced that it will, this would be a big positive for the stock and Treasury markets. It would mean the Fed's view of Potential GDP Growth is higher than the current 1.8-2.0% estimate. So, officials would be more willing to permit stronger GDP Growth than now. It also would likely lead the Congressional Budget Office to lift its estimate of longer-run growth, which would make budget projections less troublesome.
Powell highlighted the positive effects of Greenspan's insight into the implications of the technological revolution of the late 1990s -- suggesting it is an important insight into current Fed thinking. It suggests the Fed will be very tolerant of stronger growth until a noticeable pickup in inflation occurs.
"Chairman Alan Greenspan famously argued that the United States was experiencing the dawn of a new economy, and that potential and actual output were likely understated in official statistics. Where others saw capacity constraints and incipient inflation, Greenspan saw a productivity boom that would leave room for very low unemployment without inflation pressures. In light of the uncertainty it faced, the Federal Open Market Committee (FOMC) judged that the appropriate risk‑management approach called for refraining from interest rate increases unless and until there were clearer signs of rising inflation. Under this policy, unemployment fell near record lows without rising inflation, and later revisions to GDP measurement showed appreciably faster productivity growth."
Oil Prices
Powell acknowledged that the surge in US domestic oil production means that a rise/fall in oil prices will have a little impact on US GDP. This is in contrast to the past when the US was a large net consumer of oil. Then, for example, a rise in oil prices had a significant negative impact on the economy as the consumer was hit by essentially a large tax hike. Now, the hit to the consumer would be offset by a price-induced increase in domestic oil production.
To be sure,there still could be net negative effects on the US economy through the exchange rate -- although not mentioned by Powell. Higher oil prices boost world demand for dollars, since oil is traded in dollars. An increase in dollar demand would result in a higher dollar exchange rate, which would hurt US net exports.
Measuring Labor Market Tightness
Powell said the Fed is working with ADP to construct a new measure of job growth. It was more accurate regarding job losses during the Great Recession than official data at the time. But, he was not more specific than that. He acknowledged that the recent BLS estimate of the benchmark revision to Payrolls would lower m/m Payroll growth. But, he said the pace would still be strong enough to tighten the labor market:
"Based on a range of data and analysis, including our new measure, we now judge that, even allowing for such a revision, job gains remain above the level required to provide jobs for new entrants to the jobs market over time."
Sunday, October 6, 2019
More Hurdles for the Stock Market
The stock market is about to face another hurdle, with the start of the Q319 corporate earnings season. Earnings are expected to be soft, with consensus about -3.5% y/y for the S&P 500 (see my September 22 blog). Besides earnings, the market should continue to react more significantly to news on the US economy and US/China negotiations than the impeachment inquiry. Any market reaction to the latter will likely be temporary.
Last week's US data tripped the stock market but did not undermine the rally. The September Employment Report was strong enough to blunt the market's recession-interpretation of the weak 49.1 Mfg ISM (see below). This coming week's economic news is centered on inflation measures -- the September PPI and CPI.
Both the Core PPI and Core CPI are expected to be benign. Consensus looks for a benign 0.2% m/m increase in both, keeping the y/y at 2.4% for the Core CPI and 2.3% for the Core PPI. Both printed 0.3% in August. Lower-than-consensus print cannot be ruled out. For the more important Core CPI, health services prices could flatten after an out-sized increase in August. Owners' Equivalent Rent may stay low at 0.2%. And, Apple's inclusion of a free year's streaming service with a new phone could be captured as a price decline by BLS. However, some prices could be boosted by a pass-through of tariffs. Whatever prints is not likely to stand in the way of an October Fed rate cut.
The Minutes of the October FOMC Meeting should be a non-event. Fed Chair Powell has said many times the Fed will do what is needed to maintain economic growth in the midst of many downside risks. And, I have argued that it will likely be persuaded to cut again or not by how the markets react to upcoming data (see my September 8 blog). So far, global economic data remain weak, and the markets are building in a 25 BP rate cut at the October 29-30 FOMC Meeting.
US/China negotiations are scheduled to resume late this week. An agreement to continue talking may be more likely than a real breakthrough, since the underlying issues are fundamental to China and not easy to resolve. And, news reports suggest China is not ready to agree to the reforms desired by the US.
The markets overreacted to the soft September Mfg ISM last week, believing it to be signaling recession. Historically, the Mfg ISM tends to be well below 50 when the overall economy goes into recession. According to ISM, "A PMI® reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI® above 43.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 43.2 percent, it is generally declining."
Last week's US data tripped the stock market but did not undermine the rally. The September Employment Report was strong enough to blunt the market's recession-interpretation of the weak 49.1 Mfg ISM (see below). This coming week's economic news is centered on inflation measures -- the September PPI and CPI.
Both the Core PPI and Core CPI are expected to be benign. Consensus looks for a benign 0.2% m/m increase in both, keeping the y/y at 2.4% for the Core CPI and 2.3% for the Core PPI. Both printed 0.3% in August. Lower-than-consensus print cannot be ruled out. For the more important Core CPI, health services prices could flatten after an out-sized increase in August. Owners' Equivalent Rent may stay low at 0.2%. And, Apple's inclusion of a free year's streaming service with a new phone could be captured as a price decline by BLS. However, some prices could be boosted by a pass-through of tariffs. Whatever prints is not likely to stand in the way of an October Fed rate cut.
The Minutes of the October FOMC Meeting should be a non-event. Fed Chair Powell has said many times the Fed will do what is needed to maintain economic growth in the midst of many downside risks. And, I have argued that it will likely be persuaded to cut again or not by how the markets react to upcoming data (see my September 8 blog). So far, global economic data remain weak, and the markets are building in a 25 BP rate cut at the October 29-30 FOMC Meeting.
US/China negotiations are scheduled to resume late this week. An agreement to continue talking may be more likely than a real breakthrough, since the underlying issues are fundamental to China and not easy to resolve. And, news reports suggest China is not ready to agree to the reforms desired by the US.
The markets overreacted to the soft September Mfg ISM last week, believing it to be signaling recession. Historically, the Mfg ISM tends to be well below 50 when the overall economy goes into recession. According to ISM, "A PMI® reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI® above 43.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 43.2 percent, it is generally declining."
Friday, October 4, 2019
Sep Employment Report Does Not Confirm Markets' Drastic Reaction to Mfg ISM
The September Employment Report does not confirm the markets' drastic take on the sub-50 Mfg ISM earlier this week. It confirms a slower trend in job growth, but one that is still strong enough to push down the Unemployment Rate. Despite the tighter labor market, wage inflation remains in check -- although technical factors likely helped depress Average Hourly Earnings. If the markets force the Fed to ease at the October 29-30 FOMC Meeting, the Report argues that it would do so by only 25 BPs.
The +136k m/m increase in September Nonfarm Payrolls is well below the +171k 3-month average ending in August. Excluding government jobs, Private Payrolls rose 114k versus the 135k prior 3-month average. But, both the September and recent trend job gains are above the near-100k m/m needed to keep the Unemployment Rate steady (assuming no increase in the Labor Force Participation Rate). Moreover, the cyclical components -- construction, manufacturing and mining -- were altogether up slightly m/m in September and do not confirm the markets' fears of recession. In particular, the September Industrial Production Report should show flattish Manufacturing Output excluding the GM Strike-related drop in motor vehicle production. (Manufacturing jobs rose 2k, excluding motor vehicle jobs).
The Report supports expectations of modest Real GDP Growth in Q319, and does not rule out stronger growth in Q419. Total Hours Worked (THW) rose 0.8% (q/q, saar) in Q319. Adding 0.5-1.5% for Productivity Growth shows that 1.5-2.5% range is not an unreasonable expectation. To be sure, the GM strike in H2 of September will subtract from Q319 GDP, so a print in the lower end of the range may have a better chance of printing. But, THW's take-off point for Q419 is good. The September level is 0.8% (annualized) above the Q319 average. So, at this point, a speedup in Q419 Real GDP Growth cannot be ruled out.
The drop in the Unemployment Rate to 3.5% also argues that GDP Growth is above trend. Even the broader U-6 measure of labor market slack fell to 6.9% -- only the 2nd time since the series began in 1994 when it reached that level. The decline in Unemployment resulted from a jump in Civilian Employment more than offsetting a moderate increase in the Labor Force.
The 0.0% m/m September Average Hourly Earnings was the risk, based on calendar considerations and some unwinding of August's out-sized +0.4%. The y/y fell to 2.9% from 3.2%. Calendar considerations suggest a 0.1-0.2% print in October, which should put the y/y at 2.9-3.0%. Note, however, that AHE is the narrowest of the major measures of labor costs. So, the low prints may not tell the whole story.
The +136k m/m increase in September Nonfarm Payrolls is well below the +171k 3-month average ending in August. Excluding government jobs, Private Payrolls rose 114k versus the 135k prior 3-month average. But, both the September and recent trend job gains are above the near-100k m/m needed to keep the Unemployment Rate steady (assuming no increase in the Labor Force Participation Rate). Moreover, the cyclical components -- construction, manufacturing and mining -- were altogether up slightly m/m in September and do not confirm the markets' fears of recession. In particular, the September Industrial Production Report should show flattish Manufacturing Output excluding the GM Strike-related drop in motor vehicle production. (Manufacturing jobs rose 2k, excluding motor vehicle jobs).
The Report supports expectations of modest Real GDP Growth in Q319, and does not rule out stronger growth in Q419. Total Hours Worked (THW) rose 0.8% (q/q, saar) in Q319. Adding 0.5-1.5% for Productivity Growth shows that 1.5-2.5% range is not an unreasonable expectation. To be sure, the GM strike in H2 of September will subtract from Q319 GDP, so a print in the lower end of the range may have a better chance of printing. But, THW's take-off point for Q419 is good. The September level is 0.8% (annualized) above the Q319 average. So, at this point, a speedup in Q419 Real GDP Growth cannot be ruled out.
The drop in the Unemployment Rate to 3.5% also argues that GDP Growth is above trend. Even the broader U-6 measure of labor market slack fell to 6.9% -- only the 2nd time since the series began in 1994 when it reached that level. The decline in Unemployment resulted from a jump in Civilian Employment more than offsetting a moderate increase in the Labor Force.
The 0.0% m/m September Average Hourly Earnings was the risk, based on calendar considerations and some unwinding of August's out-sized +0.4%. The y/y fell to 2.9% from 3.2%. Calendar considerations suggest a 0.1-0.2% print in October, which should put the y/y at 2.9-3.0%. Note, however, that AHE is the narrowest of the major measures of labor costs. So, the low prints may not tell the whole story.
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