The US economy got more incrementally bad news on Wednesday morning in the form of a slightly soft ADP employment report.
US firms added 135k jobs last month, trailing the 140k consensus was looking for. The range from three-dozen economists was 70k to 169k. August’s figure was revised lower by 38k.
The 135k print is hardly a disaster, but it does represent the slowest pace of hiring in three months, which potentially bodes ill for nonfarm payrolls on Friday.
“The job market has shown signs of a slowdown”, Ahu Yildirmaz, vice president and co-head of the ADP Research Institute said. “Businesses have turned more cautious in their hiring. Small businesses have become especially hesitant”, Mark Zandi, chief economist of Moody’s Analytics, remarked, on the way to warning that “if businesses pull back any further, unemployment will begin to rise”.
On its own, this wouldn’t be a big deal, but on Wednesday, it adds to the palpable sense of angst created by the worst ISM manufacturing print in a decade. “The 5-month moving average [for ADP] is now just 117k, the lowest since 2010”, Bloomberg’s Cameron Crise notes.
As far as the burgeoning US factory slump is concerned, SocGen’s Kit Juckes was out Wednesday with a somewhat foreboding note called “By the time ISM confirms recession, it’ll be too late”.
We’ve variously documented the extent to which sub-50 ISM prints do not necessarily have to be a harbinger of the end times, and when they aren’t (i.e., when they don’t presage a recession) equities tend to surge as things get back on track in subsequent months.
Read more: S&P Can (And Probably Will) Rally Despite US Manufacturing Contraction
Of course, if a recession does follow a contraction in the manufacturing sector, that isn’t good for stocks and irrespective of what happens to risk assets from here, we now know that the US economy has been stripped of its teflon coating, something SocGen’s Juckes underscores.
“I think we can reasonably draw a couple of conclusions. Firstly, the manufacturing recession is global, in that it includes the US”, he writes. “Secondly, if the Fed is aware of downside economic risks and standing by to act if needed, the chance that they act sooner rather than later has increased”.
He goes on to say that “there have been plenty of ‘false-positive’ sub-50 manufacturing ISM readings which haven’t led to recessions in the last 25 years”. The simple chart above illustrates the point.
“Most recently, we saw the index nudge below that level in 2012 and 2016”, Juckes reminds you. “Though not by as much as it did last month”.
Whatever the case, the October FOMC just got considerably more complicated for a Fed chair who isn’t exactly adept at navigating troubled waters.
“It would have been a tough tightrope act to begin with, particularly given Powell’s tendency to speak off the cuff and the fact that he played down the repo market’s mayhem after the Fed’s most recent decision”, Bloomberg’s Brian Chappatta wrote Tuesday, cautioning that embattled policymakers will now be forced to quell both money market worries and downturn jitters at the end of the month. “That act just got tougher because it looks as if the Fed will have to deal with recession fears on top of repo strains”, Chappatta adds.
And then there’s Trump. There’s always Trump.
ISM surveys are just that, SURVEYS. Like consumer confidence surveys which have proven to be marginal indicators of future consumer spending.
Why the ISM readings are treated as hard data is beyond me.
What is your opinion of the economists’ survey of the survey? I am asking for a survey.
Not sure about hard vs soft, but ISM rollovers have historically been a good indicator of GDP rollovers.
Sentiment and confidence matter. Soft eventually turns into hard.
Re: ““Secondly, if the Fed is aware of downside economic risks and standing by to act if needed, the chance that they act sooner rather than later has increased””
That hyperbolic fantasizing strikes me as incredibly stupid, because, what should the Fed have done and what difference will anything they do make? The Boneheads did screw up last year when they became overly eager to glide into normalization and jack up rates with two acts of stupidity, but even so, if the economy was so weak at that stage was a half percent over-adjustment so YUGE that it derailed a GREAT economy — and thus, will a 1% reduction correct those mistakes and set things on a new upward path — that’s all retarded, the Fed and central banks around the world have lost credibility and functionality in their efforts to transmit efficient solutions for monetary policies. At this stage, with a criminal president in the WH and a stupid Fed and globally synchronized stupid CB’s — how will the Fed’s action to lower rates a bit more MAGA — this is ludicrous!
As was posted yesterday, a comment by
Joseph E. Stiglitz :
If lowering the interest rate from 5.25% to essentially zero had little impact on the economy in 2008-09, why should we think that lowering rates by 0.25% will have any observable effect? Large corporations are still sitting on hoards of cash: it’s not a lack of liquidity that’s stopping them from investing.
America should be in a boom, with three enormous fiscal-stimulus measures in the past three years. The 2017 tax cut, which mainly benefited billionaires and corporations, added some $1.5-2 trillion to the ten-year deficit.
Re: “If lowering the interest rate from 5.25% to essentially zero had little impact on the economy in 2008-09, why should we think that lowering rates by 0.25% will have any observable effect?”
The main change after the Great Recession, was the slow decline in unemployment and a sense that there was more stability and growth, primarily during the Obama recovery period — and then that employment stability became a YUGE part of the trump bump and the perception that all the tax cuts and overreach by trump was going to MAGA. There was always suspicions that The Philips Curve and various metrics related to employment were somehow not right, even fake. The low unemployment never connected to greater GDP (in a meaningful way) and never reflected why treasury yields remained low, flat and declining. As such, trump was more than willing to point his dunce cap at stock market index growth and low unemployment as measure of his YUGE success. The lack of global growth was never resolved from 10 years ago and then trump stumbled into the WH with destabilizing policies and insane objectives that were out of step with global realities, turning weakness into instability, if not chaos. Furthermore, within that context, there is global political uncertainty that is reflective of pre-WW ll and post WWl and global social economic inequality. That is seen by the pathetic and stupid candidates offered up as choices for change, i.e., choices between extremism and polarity, the very fuel for civil wars and chaos. Maybe history repeats itself and maybe there is never a real way to solve inequality, or fix stupid, but we will face a great challenge when monetary policy becomes meaningless and then unemployment increases while GDP declines further and rates head to zero — what happens then and how do a handful of corrupt corporations save the global economy? WTF?
]April 19, 2018] Certainly, some of the figures in the IMF’s latest fiscal report were eye-catching: debt at the end of 2016 was $164 trillion, or 225 percent of global GDP; almost half of the rise since 2007 has come from China alone; government debt-to-GDP in advanced economies has only ever been higher once in history, around the time of the Second World War.
Interest rates have been floored at zero for a decade, central banks have pumped over $10 trillion of QE into the global financial system and governments have unleashed a tsunami of fiscal stimulus not seen since for decades.
https://www.reuters.com/article/global-debt-imf/column-record-164-trillion-global-debt-a-big-number-but-not-a-big-worry-mcgeever-idUSL8N1RW2SG
[2016] The numbers are daunting if not shocking: $12.3 trillion of money printing, nearly $10 trillion in negative-yielding global bonds, 654 interest rate cuts since Lehman Brothers collapsed in 2008. [ They don’t explain that number, but the relationship between global QE stimulus and actual GDP growth is alarming!]
https://www.cnbc.com/2016/06/13/12-trillion-of-qe-and-the-lowest-rates-in-5000-years-for-this.html
I hate to mention it because it’s one of Bannon’s favorite reads, but Strauss and Howe predicted a major crisis in or around 2020 more than twenty years ago in “The Fourth Turning,” There almost certainly will be a major debt reset, as John Mauldin has been saying/writing, in the early ’20s, and a lot of people who are wealthy on paper are going to find themselves a lot less wealthy.
The lightbulb went off for me a sometime ago and is as follows. The Great Recession as did the Great Depression before it, accelerated 20 years worth of economic structural change from 20 years to 5. That makes modeling the economy that much more dificult. The argument that manufacturing is a small part of the US economy now so that a decline can be offset by services is a false god. What really happened is that manufacturing was offshored so that the some of the immediate first order correction in the economy now takes longer to percolate here- the transmission mechanism comes partly from our outsourced manufacturing so it takes longer. The first order effects are not as dramatic or immediate but the second and third order effects happen. So foreign exchange, trade/exports, and a lagging effect on our economy are substituted for immediate layoffs in manufacturing in our communities. Thus I fear a shallow but long lasting recession/poor recovery more than a dramatic recession/depression here. The outcome is just as bad though, maybe worse. Everyone will keep thinking recovery is around the corner when the correction comes, but it could be a long slog.
Follow up to the Bonehead & Dunderhead Show:
Two Little-Noticed and Self-Inflicted Causes of the Fed’s Current Monetary Policy Implementation Predicament
Bill Nelson (bpi)
October 1, 2019
“Thus, it is concerning that the decisions to allow massive growth in the Treasury General Account and Foreign Repo Pool may not have been made with sufficient deliberation. As described above, the Fed and Treasury elected to leave Treasury cash balances in the TGA rather than in deposits under the jointly run TT&L program even after interest rates began to rise, but there is no record of that decision in any FOMC minutes. Similarly, the Fed decided in 2015 to remove constraints on foreign official counterparties’ ability to vary the size of their investments in the Foreign Repo Pool; again, though, we cannot find this decision reflected in the FOMC minutes. Thus, as the Fed grapples with numerous adverse consequences of its continued operation of a floor system, it may be worth a wholesale review of the decisions, or non-decisions, that led it there.”