World Economy

Weak US Jobs Report Could Jar Stocks

Weak US Jobs Report Could Jar StocksWeak US Jobs Report Could Jar Stocks

Economists expect a steady pace of job growth of about 200,000 in September, but if there’s a miss that would spark market fears that the economy is slowing down and the Fed was right to hold off on a September rate hike.

The September employment report is the last jobs number the Fed will see before it meets Oct. 28, so traders are giving it extra weight. The Fed is not expected to raise rates in October, and the market sees a less-than-50% chance it will hike in October. But Fed officials have made clear they want to raise rates this year, and many economists still expect to see a December rate hike, CNBC reported.

The Fed has said it will base its decision on the economic data though it did caution that it held off in September because of international developments, meaning a slowing China and its possible impact on the economy. According to Thomson Reuters, the consensus is for job growth of 203,000, compared to 173,000 last month, and an unemployment rate unchanged at 5.1%.

Mesirow Financial chief economist Diane Swonk expects to see 220,000 payrolls, a 5.1% unemployment rate and wage growth of 0.2%. She expects the Fed to hike rates in December.

“They (the Fed) already think we’re getting close on employment,” she said. “If you get a little bit of wage acceleration, that would give them a little more confidence.” She said the Fed wants to move ahead on a rate hike, the first in nine years. “The Fed is also just very concerned even though markets have been volatile. Are they feeding bubbles?”

 Manufacturing Data Slumps

Traders were rattled Thursday when ISM manufacturing data came in at 50.2, below the 50.6 expected and just above 50, the number that divides expansion and contraction in the sector. But that was offset by a jump in construction spending and a 10-year high in the pace of September vehicle sales.

“ISM is softer but it’s still above 50,” said Arthur Bass, of COEX Partners. “It’s getting back toward the flip over, and Chicago PMI did flip over. … The Fed may have missed its window for tightening which is why we’re seeing all these ‘Fed on hold through 2016’ bets being made in the euro dollar market.”

Swonk said both the ISM number and weaker exports suggest weakness related to China’s slowdown. While US trade exposure to China is not great, she said 29 countries from Australia to Chile and South Korea all count on China for more than 20% of their exports.

“It looks like GDP is coming in at 1.7% and that’s not good. That suggests you could have a slowdown in employment later in the fourth quarter. What we’re seeing right now is the residual of a really good consumer. Exports are down, exports are weak. We were seeing the slowdown of China before we knew it,” she said.