September’s jobs report appeared to shift investors’ focus from recession concerns to inflation, but some economists questioned the reliability of the payroll data, citing frequent downward revisions. is being cast. Additionally, credit conditions are tight for small and medium-sized enterprises, and employment is slowing down.
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September’s employment report appears to have changed investors’ view of the labor market.
Recession fears, primarily heightened by the activation of the SARM rule in August, have suddenly given way to concerns that the Fed has begun easing too soon and that inflation remains a foreseeable threat. Investors didn’t exactly have a definitive answer to that question Thursday morning, when the consumer price index (CPI) rose 2.4% in September from a year earlier, slightly above consensus.
But some economists have warned in recent days that this swing in sentiment is the wrong path for markets to take, at least for now.
Perhaps unsurprisingly, that includes the seemingly perennial bearish David Rosenberg. The Rosenberg Research founder and former Merrill Lynch chief economist noted in a client note this week how often payrolls are revised downward these days, with 75% of last year’s revisions being negative. It was. Rosenberg also questions the quality of the sample and the response rate of the salary survey.
However, non-eternal bears also share this skepticism. Samuel Toomes, chief U.S. economist at Pantheon Macroeconomics, cited these exact reasons in a note Wednesday, saying he and his team are “testing whether September’s 254,000 salary increase can be trusted. I have real doubts about it,” he wrote.
For Tombs, there are other reasons to be cautious in adopting a more constructive view of the labor market. For example, small and medium-sized enterprises are less motivated to hire, he said, consistent with private non-farm payroll growth falling below 100,000 in the coming months.
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And despite recent easing, policy tightening from last year is still impacting small businesses, making it more difficult for them to access the loans they often use to grow and hire employees. are.
“While market-based financial indicators have eased, bank credit, the lifeblood of many small and medium-sized businesses, remains extremely tight,” Toombs said. “We believe the latest NFIB figures are a good example of how previous monetary policy tightening is still having an impact across the economy. There is a normal lag between interest rate changes and activity. Given that the situation will probably get even worse for small businesses before they get better. ”
Neal Dutta, chief economist at Renaissance Macro Research, who warned earlier this year that the likelihood of a recession was increasing, also said in a note Monday that the strong labor market trend that has been circulating is quickly pegged. Again in the garage a few months later highlighting the many reasons why you shouldn’t jump.
Consumers say it’s becoming increasingly difficult to find work, according to Conference Board data, Dutta wrote. That usually means the unemployment rate will rise further.
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Sales growth is also slowing and manufacturing hiring is slowing, according to Fed data, adding to the drag on Mr. Dutta’s continued reversal in the job market.
“The labor market is not out of the woods yet. There will be another turmoil in the job market by the end of the year,” Dutta said. “There is reason to assume that the unemployment rate will trend upward again.”
Still, it is unclear how much pressure the labor market will come under in the coming months. In Rosenberg’s words, the U.S. economy tends to pick up unexpectedly.
However, Dutta and Toomes believe that worrisome trends will continue based on the near-term outlook for the federal funds rate. Tombs believes interest rates will fall to 2.5% by the middle of next year, 1 percentage point lower than market expectations, according to the CME FedWatch tool. Although market expectations have virtually disappeared, Dutta still expects another 50 basis point rate cut this year.
“While it is unlikely that we will see a 50 basis point rate cut in November, we are not yet willing to completely rule out the idea before the end of the year,” Datta said. “Some analysts have even gone so far as to say that this year’s rate cut is done. I am resistant to that idea. They made similar claims earlier in the year following the first quarter inflation data. As with any report, we are getting too many signals from one report.”
