Investors will be eyeing updates on U.S. employment in the week ahead, as the domestic labor market has been increasingly scourged by a slew of job losses and political uncertainty.
To date, the jobs market has generally remained resilient to a host of geopolitical headwinds, including slowing global growth, as well as the effects of trade-related tariffs stemming from the ongoing disputes between the U.S. and China.
The Federal Open Market Committee (FOMC), the policymaking body of the Federal Reserve, at its September meeting described the labor market as “strong,” underpinned by “solid” job gains and a “low” unemployment rate – this despite the central bank’s recent path of lowering the federal funds rate.
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The FOMC in mid-September had cut the target range for the fed funds rate by 25bps to 1.75-2%, amid weaker business fixed investment and exports since its July meeting, as well as below-target inflation.
Market participants honed-in on Fed members’ divided views on the decision, with chair Jerome Powell, vice chair John Williams, Michelle Bowman, Lael Brainard, Richard Clarida, Charles Evans and Randal Quarles in favor, while James Bullard preferred to lower rates by 50bps, and Esther George and Eric Rosengren each wanted to maintain the target range at 2-2.25%.
Analysts at J.P. Morgan recently noted that the overall message coming from the Fed “seemed divergent and paints an unclear picture on whether we will have zero, one or multiple cuts ahead.” They added that given “the lack of clarity about the Fed’s next move, in addition to other market uncertainties, investors should prepare for more volatility ahead.”
Political-inspired Volatility
Meanwhile, political uncertainties have risen following Speaker of the U.S. House of Representatives Nancy Pelosi’s (D-Calif.) recent announcement that a formal impeachment inquiry would be launched against President Donald Trump.
Details behind the action involve alleged wrong-doing by the commander-in-chief with respect to upholding his oath of office, betraying national security and tainting the integrity of the U.S. election process.
While political analysts and legal experts work to separate fact from speculation and opinion, market conditions remain relatively benign.
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The S&P 500 was last up around 0.02% intraday Friday to 2,978.34, while the tech-heavy Nasdaq lost about 0.04% to 8,027.11, and the Dow Jones Industrial Average was up more than 0.3% at 26,979.18.
In fact, the S&P 500 has gained nearly 29.8% since President Trump was sworn into office on January 20, 2017, despite the myriad of controversial issues surrounding his presidency.
However, certain of the Trump administration’s policies, underscored by the trade-related tariffs on Chinese imports, may now be posing more adverse impacts on U.S. companies – notably retailers, which, in turn, could affect consumer sentiment, householding spending and, ultimately, overall economic growth.
There already appear to be cracks emerging in the labor market’s foundation, amid an upward trajectory in the number of announced private payroll cuts in August – as well as ongoing warnings by companies about the impacts of tariffs on their spending plans.
Economic Calendar and History
Among the deluge of economic releases and Fed speeches in the week ahead, investors will receive updates on the strength of the employment picture with:
Wednesday, October 2
- ADP National Employment Report (Sept)
Thursday, October 3
- Challenger Job Cuts (Sept)
Friday, October 4
- Bureau of Labor Statistics Employment Situation (Sept)
While there has been some labor market data that has helped buoy the strength of the overall employment situation, the overall jobs picture seems to be growing somewhat darker.
ADP, for example, had reported a rebound in nonfarm private sector employment, with a rise of 195k jobs in August from the prior month.
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ADP Research Institute cohead Ahu Yildirmaz said that it was the first time in the last 12 months that “we have seen balanced job growth across small, medium and large-sized companies,” while Moody’s Analytics chief economist Mark Zandi saying that businesses were “holding firm on their payrolls despite the slowing economy.” Zandi added that hiring had moderated, but layoffs remained low, and if that scenario continues, “recession will remain at bay.”
Cuts Adding-up
Meanwhile, global outplacement firm Challenger, Gray & Christmas observed that U.S.-based employers ramped up their pace of downsizing in August, as companies announced plans to cut 53,480 jobs from their payrolls. The number is up 37.7% from July’s total of 38,845.
The latest total is the fourth-highest for job cuts year-to-date in 2019, and the largest number of cuts for the month of August since 2009, when 76,456 were recorded.
Technology-led all sectors in the latest month, with 15,355 announced layoffs, including 488 cuts from Cisco (Nasdaq: CSCO). In fact, there has been a 341.2% spike in job cuts at tech companies year-over-year.
Andrew Challenger, VP of Challenger, Gray & Christmas, said, “Employers are beginning to feel the effects of the trade war and imposed tariffs by the U.S. and China.” He observed that trade difficulties were cited as the reason for over 10k job cuts in August.
Challenger added that investor concerns are continuing to shake confidence in the market, and “employers appear to be cutting workers in response to a slowdown in demand for their products and services.”
On Alert: Retail and Media Sector Layoffs
Furthermore, sectors such as retail, housing, energy, manufacturing, and autos each appear to be contending with some form of legislation, tariff, regulation or union dispute that hampers their bottom lines.
U.S.-based retailers, for instance, continue to adjust their strategies to combat trade-related tariff headwinds, amid ongoing and escalating disputes with China.
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Market participants have warned that levies on apparel, footwear, consumer electronics, and toys imported from China will likely impact profitability at several major U.S. firms, including sportswear producer Nike (NYSE: NKE), iconic department stores Macy’s (NYSE: M), Kohl’s (NYSE: KSS) and Walmart (NYSE: WMT), as well as electronics giant Best Buy (NYSE: BBY).
Business Insider also recently noted that layoffs in the transforming media industry have amounted to more than 7,200 year-to-date in 2019, including at companies such as Spin, The Walt Disney Company (NYSE: DIS), BuzzFeed, Verizon (NYSE: VZ), and Vice Media.
BLS NFP In Focus
Investors will likely be sifting through the ADP and Challenger Report data in the week ahead in the run-up to the major release of the Bureau of Labor Statistics’ (BLS) employment situation for September.
Although the headline figure in the jobs report for August missed expectations, some market participants found optimism in other details.
Ward McCarthy, chief financial economist at Jefferies, for example, said that the data “tells a mixed story about the state of the labor market.
“The payroll data from the establishment survey points to a decelerating trend in payroll growth, but strong wage growth. This combination is consistent with the detail of the NFIB small business survey that indicates that firms have job openings that they are unable to fill and, therefore, are raising wages both to keep current workers and to attract new ones. The persistently high diffusion indices also indicate that most firms are still hiring.”
McCarthy also pointed out that the household survey is “very strong, with a rise in participation, a surge in the labor force and a larger surge in employment,” contributing to a labor market that is “solid and also getting tighter.”
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Investors will be watching the data closely as political risks unfold in Washington, and as trade negotiations and investment relationships with China intensify.
Other economic releases in the week ahead include the ISM Manufacturing PMI for September, weekly petroleum inventories, factory orders, vehicle sales and trade balance data for August – all amid a busy schedule of Fed speakers that include remarks from chair Jerome Powell, as well as vice-chair Richard Clarida and governors Michelle Bowman and Lael Brainard.
In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of the U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.
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