Attention shifting to employment data…
- Markets continue their shift in focus away from inflation data points and towards the jobs data. Last Friday, the Labor Department released its August jobs report and Wall Street was not impressed. The popular S&P 500 index closed down 1.7% and ended the week with its largest weekly loss in 18 months. The labor report showed 142,000 jobs being added in August – far below the recent monthly average of 173,000 jobs. Meanwhile, the August unemployment rate, measured at 4.2%, maintaining its relatively elevated levels.
- There are growing fears if the job data continues its recent negative trend that the economy will sail past a possible soft landing and enter into recession. Central bankers will begin meeting next week to debate on the size of their first rate cut, either a 0.25 percentage point reduction or a larger 0.50 percentage point rate cut. Two weeks ago, the odds were evenly split between a large and a small rate cut. Today, forecasts sharply favor a more modest 0.25 percentage point cut. Only the first of a series of anticipated rate cuts, next week’s reduction is predicted to be the first step of an anticipated total 2.5 percentage point decline in overnight rates over the next 18 months.
- Supporting this position was Wednesday’s Consumer Price Index (CPI) report which showed inflation coming in slightly below expectations. The reading, at 2.5%, was modestly better than the predicted 2.6% increase in prices. While not yet at the Federal Reserve’s target of 2.0%, this report highlighted inflation’s ongoing decline and re-affirmed the belief that a Fed rate cut next week is an absolute certainty. The less important Producers Price Index (PPI), an inflation report based on the supply chain, report was released this morning and showed a 0.2% increase relative to a consensus forecast of 0.1%of 1.8%-2.0%. Markets have paid little heed to this report, considering it a less important outlier.
- Taking a quick look at the political situation, former President Trump and Vice President Kamala participated in their first debate earlier this week. Going into the debate, polls were largely a dead heat between the two presidential candidates. After the debate, the perception has largely been that Vice President Harris won although the two major predictive models still suggest that the election is a tossup. Expectations are high for a proposed additional debate between the two candidates.