September Jobs Report Last Before November FOMC Meeting
September Jobs Report Last Before November FOMC Meeting
It’s perhaps a quirk of the calendar that this Friday’s September Employment Report will be the only one before the Fed’s next FOMC meeting on November 3. So the question becomes how consequential can it be? We think the risks are asymmetric in that it would take a decidedly negative report, like a substantial contraction in jobs, to derail the momentum building for a tapering announcement at the meeting. The Fed clearly wants to get tapering going and concluded by mid-2022 for two reasons: (1) to restore another tool in the monetary tool box in case the economy turns south before expected; and, (2) tee-up the rate hiking schedule should the economy perform at or better than expected.
Right now, expectations are strongly leaning towards a decent, if unspectacular, report that will indeed set-up the expected tapering announcement in November. Thus, we see little chance the jobs report upsets those calculations, especially as the data will be nearly a month old when the November FOMC decisions are made.
In this week’s podcast I have a chance to sit down with Chad McKeithen, Managing Director of our Duncan Williams Division and talk investment thoughts, ideas, and strategies for the fourth quarter. With most banks still awash in excess liquidity and limited loan demand you’ll want to give it a listen. The iTunes link can be found here and the Spotify here.
September ISM Reports Reveal Continuing Economic Strength
While we wait for the September Employment Report on Friday, we already have a pair of September reports that show a fairly decent month of activity in both the manufacturing and services side of the economy. The ISM Manufacturing Index was released last Friday and exceeded expectations at 61.1 versus 59.5 expected and 59.9 in August. Recall that anything above a 50 reading represents an expanding sector. As the graph shows the manufacturing area has been climbing rather steadily since early in the pandemic, indicating the goods side of the economy performing well, despite supply shortages that have slowed some assembly lines.
The ISM Services Index was released yesterday and it too beat expectations rising to 61.9 versus 59.9 expected and 61.7 in August. The supposed handoff from the goods side to the services side of the economy may finally be happening after some fits and starts brought on by the delta variant causing a surge in virus cases. That rebound in virus cases slowed the reopening of many service-side businesses and gave many consumers reason to pause.
It will be one of the critical points in the September jobs report to see if the services side had a rebound in job creation. Recall the August jobs report saw no job growth in the hospitality sector due to the rebound in virus cases and that contributed almost single-handily to the somewhat disappointing August report.
Oil and Natural Gas Prices the Latest to Join the Price Spike Party
One of the developments in 2021 has been the rebound in oil and natural gas prices. The oil rebound occurred first, just as lockdowns were beginning to be in eased in the spring on 2020. Natural gas, as shown in the graph, took a little longer to develop some upward momentum but it certainly has been enjoying a parabolic run of late. Part of the pricing patter is fouled transportation logistics of getting the commodity from point A to point B, but the whys of the price increases don’t make them any less painful to the end-user.
The problem is more acute in Europe, and especially in the UK which is suffering post-Brexit driver shortages that have exacerbated the problem. The price spikes, if they do stick around, will be another factor in perhaps dialing down growth expectations in the UK and in Europe.
The problem is less of a pain point in the US economy as the energy complex now accounts for just over 7% of CPI weighting. So while the price spikes might not contribute to outsized moves in inflation, they will act more so as a tax on consumption as consumers spend more to gas cars and heat homes with less to spend on discretionary items. The gas price spike has been slow and gradual but the natural gas price move has been recent and sharp, and with cooler weather around the corner it could put a damper on some consumer spending in the fourth quarter.
Agency Indications — FNMA / FHLMC Callable Rates
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