This Thursday we will see the CPI report for August, as well as our usual initial claims data. This will give us a better idea of inflation before the FED meeting on the 17th – the one where everyone expects the FED to cut rates by 0.25%.
Last week, we had two employment reports for August. The first was the ADP private sector hiring data, which came in at 54,000 for the month, well short of the expected 75,000.
On the good side, wages saw a 4.4% increase year over year. That sounds a bit inflationary, but remember we have to take out productivity from that number.
Then we got the big one! The nonfarm payrolls for August, published by the BLS (Bureau of Labor Statistics). That said new nonfarm jobs increase by 22,000 for the month.
On top of that, they revised June jobs to a net loss of 13,000. You can see from the chart below that the past few months have not been spectacular.
Is the FED behind again? We’ve been saying they have been, as have many economists, including the well-regarded Mohamed El-Erian.
So, we will see if CPI (inflation) comes in lighter than expected, or if tariffs are spelling doom. I think worst case is they are a one time “tax” and then things go back to normal on the inflation front. Best case is much of the tariffs are absorbed by companies that are having a tough time passing them on in an economy that is burdened by high debt and low growth (and getting slower). I think you know which way I lean.
Finally, the bond market reacted to that weak jobs number and bonds rallied as rates fell hard.
This pushed mortgage rates down a lot on Friday.
And that also set the table for the FED to cut interest rates next week. In fact, odds have jumped that they could double prior expectations and cut by a full 0.50% (1 in 8 chance, according to the markets).
I don’t see that happening, unless we get some crazy inflation print on Thursday. Barring that, I would expect a 25-basis point cut (0.25%), with more to potentially follow later this year in a slow and measured approach by the FED.
That’s it for this week. Please let us know if you have any questions or comment about this or any other topic. We will be happy to have a conversation.