INDICATOR: October Private Sector Jobs and NonManufacturing Activity, September Trade Deficit
KEY DATA: ADP Payrolls: +365,000; Leisure/Hospitality: +125,000/ ISM (NonManufacturing): -1.2 points; Orders: -2.7 points/ Trade Deficit: down $3.2 billion
IN A NUTSHELL: “It ain’t over until the pleasantly round, amazingly melodious opera singer belts out the final notes.”
WHAT IT MEANS: As we wait to find out how the voting comes out for president and Congress, the economic story continues to be written. Today’s data point to the likelihood that the growth moderation predicted for months now, has started. This week’s big economic story will be the October employment report. When there is an employment Friday, we have an ADP Wednesday and today was no exception. The employment services firm’s report points to a much more moderate rise in payrolls than we have seen for the past five months. Indeed, the report looks almost like a normal, solidly growing economy except for one sector: leisure and hospitality. There was another large rise in employment but that may be the last one for a while. With COVID-19 largely out of control across the country, it doesn’t look like we will be seeing additional easing of restrictions. The ADP numbers don’t match the BLS data that frequently, so don’t assume that Friday’s report will show a less than expected job gain, but it does point to a labor market that may already be decelerating. Consensus is for about 575,000 jobs being added. I am at about 450,000.
The Institute for Supply Management’s NonManufacturing Survey eased in October. While business activity, new orders and employment all expanded more slowly, the levels of the indices were still pretty strong. Indeed, activity was growing enough to cause order books to swell solidly.
The trade deficit narrowed in September, which was expected. The good news in this report was that exports were up nicely, while imports rose modestly. We sold a lot of everything overseas, but the biggest increase was in soybeans. I suspect those went to China, or as some called it in election ads “Communist China”, but we didn’t sell a whole lot more to China in September, so I am not certain. With Chinese growth steadily recovering, it may be starting to live up to the trade agreements that were put on hold due to the pandemic. On the import side, we bought a lot of vehicles but not nearly as many cell phones. With the virus running wild, it is unclear what the holiday shopping season will look like, except that there will be an awful lot of packages delivered.
IMPLICATIONS: The election looks to be as close as expected. What kind of economy will the winner inherit? Probably one that is still growing decently but not exuberantly. On the jobs front, we will know more on Friday, but gains going forward should trend back toward the 200,000s as we go into next year. That would create fairly modest income gains and lead to a slowdown in consumption. We should be buying more from overseas, but with Europe a mess, don’t export exports to surge. And state and local governments will be putting together their budgets and the numbers look really ugly, so look for belt tightening there. Will we get another stimulus bill? Let’s wait to see what Congress looks like. But a split Congress will likely lead to a less than robust next round of household and business welfare payments and that too could weigh on the recovery. As Yogi also liked to say, the future ain’t what it used to be.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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