“Crawlin’ from the wreckage, crawlin’ from the wreckage
You would think by now at least half my brain would get the message.”
– Written by Graham Parker, sung by Dave Edmunds, 1979
We are crawling out of the wreckage of the 43-day government shutdown, which began October 1st. The actual shutdown, for those of us looking at government economic releases, was even longer, since we have just started to get pent-up numbers going back to September and in some cases August.
Most of these older numbers, like durable goods and factory orders, have lost their importance simply from the fact that it is old news and there is less efficacy in using older numbers. This week (Nov 23rd – Nov 30th) we get retail sales and PPI, but that’s more in the rearview mirror, as they’re from September.
On Thursday November 20th we got the jobs numbers from September, which should have been released the first week of October. A mixed bag, with non-farm payrolls for September up 119k – more than double the 51k that had been predicted (clearly both lose some importance by being a month and a half late). However, August payrolls were revised from a 22k gain to a drop of 4k. Manufacturing payrolls dropped to 6k, continuing what is now a 5-month string of declines. Unemployment ticked up to 4.4% from 4.3% as more people started to enter the workforce (and thus the labor force participation rate also ticked up to 64.4%).
At the Federal Reserve’s October meeting, they lowered the fed funds target to 3.75–4.0%, a quarter-point cut. Federal Reserve Chair Jay Powell went out of his way to stress that the Fed did not feel locked into any rate cut in December. Clearly, in our opinion, that was a needed fallback position, considering that the Fed did not have access to the government data, either, and didn’t want to get locked into any decision. Thursday’s numbers probably keep the Fed holding a pat hand next month, but there is still a lot of October data to follow.
What could cause the Fed to move to a cut?
There’s no real government data to be released between now and the FOMC meeting in December that we believe will move markets meaningfully. But the markets still view the odds of a cut at around 50 percent. If “Black Friday” spending reports are dismal, it could convince a majority of voting members to go for a cut.
And on Friday afternoon, November 21st, New York Federal Reserve President John Williams voiced his support for an interest rate cut, and short Treasury maturities rallied on that news. So, as we write this on Monday, markets are planning for a cut in December.
We hope everyone has a great Thanksgiving!
John R. Mousseau, CFA
Vice Chairman | Chief Investment Officer
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David W. Berson, Ph.D., CBE
Chief Economist
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