Hard to imagine a more eventful upcoming macroeconomic week in the U.S. with both a national presidential election and live Federal Open Market Committee meeting. Last week’s Employment Situation summary seemed to have brought the strong labor market narrative to an abrupt halt. Meanwhile 3rd quarter economic growth remained strong despite the ongoing Manufacturing sector weakness and core inflation remains elevated above the 2% target rate.
The BLS October Employment report (November 1) counted 12k net new jobs created led by gains in Health Care and Government. Prior months’ totals were revised lower by -112k. There was noise in the quarter related to labor strikes and the hurricane activity across the southeast. Still the Establishment survey reported private sector job loss of -28k in October. The view from the Household survey remains even more concerning. The Household survey total employment level in October is flat from August 2023 with nearly 5 million fewer jobs created since December 2020 when compared to the Establishment survey.
As employment data softens, Manufacturing PMI data continues to show glaring weakness going on 2 years now. The S&P Global Manufacturing PMI report (November 1) called out hurricane related disruptions as potentially driving short-lived weakness in their survey. The report also notes, “that orders for investment goods such as plant and machinery have fallen especially sharply in recent months. Headcounts have also been cut for a third straight month, underscoring the reluctance among firms to expand in the face of heightened geopolitical uncertainty, with firms citing tensions around the US election as well as intensifying international conflicts. There is therefore some potential upside to the manufacturing sector if the political environment becomes more conducive to spending and investment after the election.”
Finally, the BEA September Personal Income and Outlays report (October 31) found core Consumer inflation increased 0.3% in the month matching the earlier reading for the September core Consumer Price Index. My calculation of the 6-month annualized core inflation trends shows prices continuing to increase at a rate above the 2% Fed long-term target. In my view monetary policy remains restrictive while deficit fiscal spending stokes inflation higher.