U.S. Jobs Outlook Is So Weak It Echoes Disaster-Hit Months
“The last time U.S. payroll forecasts were this low, hurricanes had slammed the country in 2017, temporarily closing businesses. Or go back to 2013 when there was a federal government shutdown. But for the September jobs report due Friday, Wall Street economists see a more persistent storm at play: The trade war and manufacturing recession. Those factors are starting to permeate the economy at a time when companies are already struggling with a shrinking pool of qualified workers. The combination of forces has pushed down the median estimate for private payrolls to a gain of just 130,000 last month. That’s the weakest projection heading into a jobs report in seven years, outside of months affected by events such as major storms or the shutdown. Estimates for total nonfarm payrolls are higher, at 148,000, because of an expected boost from temporary census hiring. A reading that’s even weaker than predicted would probably boost investor expectations that the Federal Reserve will cut interest rates Oct. 30 for a third straight meeting and potentially again in December, completing a reversal of all four hikes from 2018. It may also force Fed officials to rein in their assessment of the labor market, which they’ve labeled as “strong” in policy statements as recently as September. For President Donald Trump, who has repeatedly pinned any economic weakness on the central bank, a sluggish labor market could pose a threat to his reelection in 2020. Currently the U.S. is on track to add about 1.9 million jobs this year, which would be the smallest gain since 2010 and down from 2.7 million in 2018. U.S. stocks slumped 3% in the last two days amid dour economic data. On Tuesday, the Institute for Supply Management said its factory index fell deeper into contraction in September with the worst reading in a decade, while the employment gauge hit a three-year low. Meanwhile, companies’ hiring was the slowest in three months, according to a report from private data provider ADP. “It’s starting to roll into one big ball of negativity,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “You just don’t have the supply of workers out there, but now it’s starting to become worse.”
German Recession Risk Rises as Economic Pain Spreads to Services
“Germany’s economic woes are becoming more pronounced, with a sharp slowdown in services suggesting the pain from its industrial crisis is spreading. While the weakness is still largely centered on manufacturing, a downward revision to services in September adds to the negative news coming from Europe’s largest economy. IHS Markit said the figures mean a technical recession “now looks to be all but confirmed.” A similar picture is taking over the broader European economy as Brexit hangs over the region. Euro-area services growth also slowed last month, while the U.K. saw an unexpected contraction, a warning that companies may not be able to take more of the uncertainty that’s already crippling business. In another worrying development, a measure of euro-area inflation expectations dropped for a fifth straight day, putting it on course to hit a record low. German bonds rose, with the 10-year yield slipping 4 basis points to -0.58%. They’ve been below zero for five months, reflecting growing concern about the outlook. The spillover to services is worrying for the euro area, where trade tensions and weaker global growth are already having increasingly devastating consequences. The European Central Bank deployed fresh monetary stimulus last month to support growth, and its vice president, Luis de Guindos, said Thursday that risks are still tilted to the downside. The latest PMI from Markit, which earlier this week showed manufacturing mired in a worsening crisis, mean the euro region is close to stagnation. “The euro-zone economy ground to a halt in September,” said Chris Williamson, an economist at IHS Markit. He estimates that growth was 0.1% at best in the third quarter, and “the risk of recession is now very real.” Trade remained a key source of concern for companies, and a decline export orders accelerated in September. While businesses are continuing to hire workers, they are “increasingly looking to reduce overheads and tighten belts in the face of falling demand and an uncertain outlook,” Williamson said.
China’s Soy Buying Spree May Signal Prudence Before U.S. Talks
“Chinese firms have been snapping up U.S. soybeans this week, but don’t mistake this as a sign of buyer confidence in upcoming trade talks. The companies, which received a fresh 2 million-ton quota from Beijing to import American beans free of retaliatory tariffs, have been seeking soy every day so far. That’s likely because they want to rush through orders in case the talks fail and imports are halted, said Darin Friedrichs, a senior analyst at INTL FCStone’s Asia commodities division. “The Chinese soybean purchases are a necessity and may be a sign that the crushers want to get these grades in quickly because things could change on talks,” Friedrichs said. The wariness of commodity traders is perhaps understandable given the whipsawing in relations between President Donald Trump and counterpart Xi Jinping over the past year. Chinese firms were issued tariff waivers in July as Beijing offered Washington an olive branch, only to see shipments stopped about a month later after talks fell apart. Top negotiators from the two countries are expected to meet in Washington on Oct. 10. The purchases may also be because it makes financial sense right now. Margins on crushing U.S. soybeans in China are higher than those of rival Brazil thanks to the lower prices of American soy when retaliatory tariffs are removed.”
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