The stock market should climb this week, after Friday's ostensibly strong September Employment Report dispelled fears of recession. However, there was less strength than met the eye in the Report. So, along with benign inflation data expected this week, the Fed should still be on an easing path. Although Q324 corporate earnings are expected to slow, the slowdown may be temporary.
A large increase in September Payrolls and lower Unemployment Rate were the risk, given the recent decline in Unemployment Claims. Unless the October Report (to be released prior to the next FOMC Meeting) is as strong, the Fed will not likely stop cutting rates in Q424. The Fed apparently is focused on its expectation of future weakness stemming from prior tight monetary policy, not current economic activity. Moreover, although the September Report shows a strong labor market, some parts of the Report suggest the headline Payroll print may overstate strength. Some of the jobs gain may reflect a shift toward part-time workers.
The Household Survey shows that the number of part-time workers in nonagricultural industries jumped 527k m/m in September, after a string of sub-100k increases in prior months. To be sure, this should be viewed as only suggestive, given the relatively small sample size of the Household Survey (on which the Unemployment Rate is based) compared to the Establishment Survey (on which Payrolls are based).
A shift toward part-time workers, nonetheless, could explain the dip in the Nonfarm Workweek to 34.2 Hours from 34.3 Hours in August. But, the dip could be just noise. It was 34.2 Hours in July, as well, although the industry breakdown was different from that of September. The dip in Workweek in September did not appear to be mainly among Production Workers. Their workweek was flat.
Total Hours Worked slipped m/m because of the decline in the overall Workweek. The Q324 average of THW is only 0.2% (annualized) above the Q224 average, versus +1.6% (q/q, saar) in Q224. This raises doubt about 2+% Real GDP in Q324. However, THW may overstate weakness. This is because THW for Production Workers rose 1.0% (q/q, saar) in Q324, not much below the 1.5% in Q224. So, Q324 Real GDP Growth still may be in the 2.0% range. The Atlanta Fed model's latest estimate is 2.5%, but does not yet take account of Friday's data. The next model update is on Tuesday.
The 0.4% m/m increase in Average Hourly Earnings (AHE) after an upward-revised 0.5% in August is somewhat troubling. The Q324 average rose 4.0% (q/q, saar), compared to the 3.4% increase by the Q224 average. The y/y rose to 4.0% from 3.9%. Nevertheless, large wage gains were not widespread, as fewer than half of the major sectors had large increases. AHE rose 0.4% m/m or more (on average) in only 6 of 13 sectors in Q324, versus 4 in Q224.
Consensus expects a benign print for the September CPI. It sees +0.1% m/m for Total and +0.2% for Core. The risk would be for a higher print if Owners' Equivalent does not fall back to 0.4% m/m after speeding up to 0.5% in August. Consensus looks for +0.1% m/m Total and +0.2% Core for the September PPI, as well.
Consensus estimates +4.6% (y/y) for Q324 S&P 500 earnings, down from 11.2% in Q224. The macroeconomic background appears to support a slowdown in earnings. On a y/y basis, Real GDP Growth slowed, oil prices fell and the dollar strengthened further (thereby making foreign earnings appear lower in dollar terms). In contrast income from abroad could help profits this quarter. Based on the European PMI, foreign economic activity improved on a y/y basis, although it slowed q/q. Profit margins look to have been little changed. A soft quarter of corporate earnings could be temporary, as consensus, at this point, looks for double-digit y/y returning in Q424 and continuing through 2025.
Markit
Eurozone Real GDP Oil Prices Trade-Weighted
Dollar AHE Core CPI PMI
[ y/y percent
change ] (level)
Q123 2.3 -19.5 +3.0 4.5 5.5 47.9
Q223 2.8 -32.0 +0.5 4.4 5.2 44.7
Q323 3.2 -12.0 -2.5 4.3 4.4 43.2
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