The ISM manufacturing index fell to 47.8 for the month of September, down from 49.1 in August, and contracted to its lowest level since June 2009 (end of the global financial crisis). The market was expecting a reading just above 50, which would indicate an expansionary environment. Needless to say, this report was not well received and stocks took a major hit. Trump promptly took to Twitter to blame the Fed for this situation (**face palm**). The ISM non-manufacturing index (aka services index) also fell for September to 52.6, which is the weakest growth we’ve seen in three years.
Moral of the story: While manufacturing is becoming a smaller part of our economy than it has been in the past, it’s always had a high correlation with economic growth. Additionally, the marked slowdown in the non-manufacturing index is telling – it’s approaching contractionary territory. TLDR the official economic slowdown doesn’t seem far away, winter is coming.
Fed speak for days
While stocks slid after the weak manufacturing data, they came back after the weak non-manufacturing data driven by optimism about another rate cut from the Fed this month. During the last FOMC meeting, the Fed effectively signaled there would be no further rate cuts this year but the market is assigning ~90% probability for another rate cut now. We heard from a litany of Fed officials this week and the general messaging seemed to be consistent: there’s a lot of uncertainty but GDP is still growing at ~2%, the labor market is still really strong, and inflation is near 2%
Moral of the story: Bad data being interpreted as good news because of its ability to spur stimulus is not the smartest argument in my opinion but it drove markets this week. The Fed will likely cut rates at this point because the cost of not doing so is fairly high. However, I’m skeptical on how much stimulus this actually provides for the economy at this point.
Unemployment dropping it low
After the series of unfortunate events that were the economic reports of the week, all eyes were on the jobs report Friday morning. We added 136k jobs, coming in below expectations and marking the slowest rate of job growth in four months, while wage increases slowed. The silver lining was that the jobs numbers previously reported for August and July were revised upward by 45k and unemployment rate fell to 3.5%, which is the lowest rate since the end of 1969.
Moral of the story: This jobs report seems fairly mixed – while the headline number disappointed, the low unemployment provides hope for continued strength in the American consumer.