The U.S. Economy Created 128,000 Jobs in October… The unemployment rate ticked up 0.1% to 3.6%, still near 50-year lows.
What it means – The modest number beat the low expectation of 85,000 jobs, which included the 36,000 jobs lost during the month of the GM strike. More interesting than the headline number were the revisions, which pushed up August and September jobs totals by 51,000 and 44,000, respectively. But even with those decent numbers, average hourly earnings increased by only 0.2%, putting them 3% higher than this time last year. That’s a conundrum for an exceptionally strong labor market.
Maybe the answer lies in the birth/death adjustment, where the Bureau of Labor Statistics guesses the net number of jobs created at firms not covered in their survey. For October, the adjustment added 274,000 jobs to the non-seasonally adjusted total. That’s a lot of phantom, guessed-at employment.
The Federal Reserve Cut Rates by 0.25% to a Range of 1.50% to 1.75%… It was the third Fed cut of the year.
What it means – Remember way back in 2016, or 2017, or even 2018, when the Fed estimated that Fed Fund rates would reach 3.25% or higher by this year or next? We weren’t buying it and wrote that Fed Funds would go lower long before they reached 3%. It’s good to put a prediction in the win column from time to time.
As for the Fed, Chair Powell announced the much-anticipated rate cut and essentially said, “No more.” He noted that the Fed deems the current rate appropriate for the economy unless it sees substantial deterioration. Maybe. Or perhaps they’ll wait until the yen, euro, and renminbi dive against the dollar, and then lower rates to keep our currency from shooting to the moon.
U.S. GDP Expanded 1.9% in the Third Quarter… The growth rate slightly beat the modest estimate of 1.6%.
What it means – It was all about the consumer. Non-residential fixed investment, or business spending, fell 3%, while exports also shaved a bit off of GDP growth. But Joe Six-pack increased spending by 2.9%, and that’s after spending an additional 4.6% in the second quarter. Government spending also added a bit to GDP, increasing 2% last quarter.
The GDP numbers are a problem for the Trump administration. The tax cuts were supposed to spur business spending for years, driving up investment and pushing wages higher. Unemployment remains at 50-year lows, but businesses aren’t doing their part.
With the budget deficit at $1 trillion per year and growth back where it was before the tax cuts, it will take a lot to explain why the tax cuts were a good idea. Like interest rates, at the time of the tax cuts we wrote that they wouldn’t lead to higher long-term growth. This prediction also goes in the win column, but it doesn’t always feel good to be right.
S&P CoreLogic Case-Shiller 20-City Home Price Index Up 2% in August Over Last Year… The annual price growth rate dipped to a 7-year low.
What it means – Grinding. Lower. That about sums it up. The monthly figure dipped another 0.2%, and there’s nothing in the market that shows a turnaround in the months ahead. At this rate, we should see prices turn negative by next spring, just in time for the high selling season.
Third-Quarter Eurozone GDP Expands at an Annualized Rate of 0.8%… Third-quarter growth was 1.1% higher than at this point last year.
What it means – The modest number was expected, if not exactly welcome. The report came on the heels of Volkswagen, the largest car company in the world and the powerhouse of the German economy, reporting falling sales. For the Eurozone as a whole, it was the second consecutive quarter of 0.2% growth (0.8% annualized), and there aren’t signs of improvement on the horizon. With Germany moving toward recession instead of expansion, it could be a bleak winter on the Continent.
Glue Inspired by Spiders Could Replace Sutures… Researchers noticed that spiders were able to apply a sticky substance to insects even in the rain. It turns out that spiders excrete a material that absorbs water almost instantaneously, leaving a dry spot on a surface – in this case, an insect – so that their naturally sticky compound can form a bond. Researchers have recreated the material and are testing it as double-sided tape to repair internal organs and other tissue from pigs. The tape could replace human sutures, which can tear, become infected, and otherwise fail.
The stock market posted a new high on Friday… October is full of memorable dates for investors. None of them happy. This year escaped the feared Black (you name it) day.
What it means – The world of professional investors sighed with relief as October closed without a major sell off. Irrationally high ratios remain a concern for anyone examining fundamental valuations. An upward spike from a persistent trading range does not confirm the start of an extended bull market. Caution remains the watchword as year over year earnings which have received scant attention remain weak.
Data supplied by Dent Research/Delray Beach Publishing
“When the facts change, I change my mind.
What do you do, sir?” ~ John Maynard Keynes
Our plan is “the plan will change.”
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