News: The next turn in the cycle

Friday, October 4, 2024

The next turn in the cycle

Oct 04, 2024

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QUICK FIX

If the forecasts are correct, this morning’s jobs numbers will put Jerome Powell on a course to reduce interest rates by a modest quarter of a point when the Federal Reserve holds its next meeting on Nov. 6-7.

Economists expect the Labor Department to report that non-farm payrolls grew by a solid, but unspectacular, 150,000 jobs in September. The unemployment rate is projected to hold steady at 4.2 percent, and hourly wages are believed to have grown at an annual rate of 3.8 percent. Those would all be in keeping with a soft landing that everyone — especially Vice President Kamala Harris — had hoped the Fed could achieve after it undertook one of the most aggressive series of rate hikes in its history in 2022 and 2023.

“Overall, the economy is in solid shape,” Powell said during an appearance at the National Association for Business Economics conference in Nashville earlier this week. He later added that the Fed is not “in a hurry to cut rates quickly.”

That will change if the September report comes in softer than expected. Investors and certain members of the political class threw a fit this summer when unemployment unexpectedly rose in July (the market turmoil had a lot to do with the unwinding of currency-related trades).

The labor market data released this week has been mixed. The weekly initial unemployment claims data reported on Thursday morning was within normal ranges. The Labor Department on Tuesday reported that the number of available jobs rose in August while the number of layoffs and discharges fell. Still, fewer workers are quitting their jobs — which usually means that they’re less optimistic about finding new work — and the Institute for Supply Management’s widely cited employment indexes for the services and manufacturing sectors both contracted.

Critically, Friday’s jobs report will provide a snapshot of how the labor market had fared before any shocks related to the Boeing strike, the (brief) shutdown of East Coast and Gulf Coast ports by the International Longshoremen’s Association and Hurricane Helene.

The Fed cut rates by half a percentage point, or 50 basis points, last month to preserve the labor market. So far, rising unemployment has largely been linked to an expansion of the labor pool, mostly due to immigration. But if joblessness accelerated in September due to layoffs or closures, many will call for the Fed to make an equally aggressive cut when it meets next month.

“If it goes to 4.3 percent tomorrow and it’s for employment reasons — not participation reasons – Powell has got to cut by 50 basis points,” Lindsay Owens, the executive director of the Groundwork Collaborative, told MM on Thursday.

“I just want to see symmetrical vigor” with the Fed’s adjustment of rates, Owens said. “We saw it on the inflation side, let’s see it on the labor side.”

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Driving the Day

The monthly jobs report will be out at 8:30 a.m.

Port strike ends — From Ry Rivard: “A dockworkers strike that threatened the American supply chain weeks before an election is over just days after it began and before inflicting pain on consumers. The union that represents tens of thousands of East Coast dockworkers and the shipping industry reached a tentative agreement on wages and are extending an expired contract through Jan. 15, 2025.”

— The potential economic impact of a lengthy work stoppage would have created serious problems for Harris and Democrats, who’ve been trying to convince voters that the economy remains on strong footing after years of elevated inflation and high interest rates. Analysts estimated the potential daily costs of the strike could run into the billions. The associated disruptions — which shut down container traffic at key ports from Maine to Texas — could have eventually caused prices of bananas and other grocery staples to balloon.

— “Today’s tentative agreement on a record wage and an extension of the collective bargaining process represents critical progress towards a strong contract,” President Joe Biden said in a statement. “I congratulate the dockworkers from the ILA, who deserve a strong contract after sacrificing so much to keep our ports open during the pandemic.”

Big risks — Benchmark crude prices surged on Thursday after Biden said the U.S. was “in discussion” about possible Israeli strikes on Iranian oil facilities. Climbing oil prices could push gas prices higher in the final weeks of the presidential campaign, The WSJ’s David Uberti reports.

The Economy

Surveying Helene — Bloomberg’s Akayla Gardner and Josh Wingrove: “President Joe Biden said recovery efforts would cost ‘billions of dollars’ and called on lawmakers to ensure additional funding as he toured areas devastated by Hurricane Helene on Thursday.”

— Language barriers and logistical challenges have slowed aid to many Latino communities in North Carolina, The NYT’s Edgar Sandoval reports.

Goolsbee makes the case — Chicago Fed President Austan Goolsbee on Thursday said “rates need to come down over the next 12 months by a lot.” While inflation is landing close to target, the unemployment rate has climbed and “the job market is basically where we would want it to be,” said Goolsbee, per Bloomberg’s Catarina Saraiva.

The effects of industrial Policy — BofA Global Research has published a new analysis estimating that every $10 billion of manufacturing revenue that’s moved back into the U.S. results in $3.8 billion spent on capital expenditures. The bank’s research arm found that among small businesses, payroll payments grew for manufacturing firms — particularly those in the South – and that payroll growth for construction was strongest in the Midwest. Collectively, The Infrastructure Investment and Jobs Act, CHIPS and Science Act, and the Inflation Reduction Act “spurred manufacturing and construction growth,” according to the report.

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Crypto

New crypto bill incoming — Sen. Bill Hagerty of Tennessee, who’s been floated as a potential candidate to serve in a second Trump Cabinet, is preparing to release a bill that would create new rules for the cryptocurrency industry, Jasper Goodman and Eleanor Mueller report. It’s said to be similar in structure to legislation introduced by House Financial Services Chair Patrick McHenry that his committee approved in July of 2023.

Swift acceleration — The financial messaging service Swift on Thursday announced that central banks and commercial financial institutions will now be able to use its network to conduct trial transactions of digital currencies and assets. The new trials are to explore if the network can offer “a single window of access to multiple digital asset classes and currencies – paving the way for their seamless integration into the wider financial system,” according to a release.

— Meanwhile, Visa on Thursday announced a new platform that will allow financial institutions to manage tokenized deposits and stablecoins on blockchain networks.

Spoiler alert: It’s me, Sam Sutton — From Izabella Kaminska: “A new HBO documentary claims to have cracked the true identity of the pseudonymous creator of Bitcoin, Satoshi Nakamoto. If its findings are widely accepted, the disclosure could send shockwaves through world financial markets and even the U.S. presidential election, given the way Republican candidate and former President Donald Trump has cultivated the support of Bitcoin enthusiasts.”

Jobs report

Ngor Luong has joined the State Department as the Center for Security and Emerging Technology Fellow to work on tech and China policy in the Office of the Chief Economist. She most recently was senior research analyst at the Center for Security and Emerging Technology and a nonresident fellow at the Atlantic Council's Global China Hub. — Daniel Lippman

Sanjeev Bhasker is now deputy general counsel for the Office of the National Cyber Director at the White House. Bhasker most recently was U.S. digital currency counsel for the money laundering and asset recovery section of the Department of Justice. — Daniel Lippman

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