The U.S. Economy Created 130,000 Jobs in August… The unemployment rate remained steady at a very low 3.7%.
What it means – Bad news is once again good news. The jobs number missed the low end of expectations by 20,000, and even the low print got a boost from 34,000 new census workers on the government payroll. The private payroll, which expanded by 96,000, was 40,000 short of estimates, which is a big miss. With a potential Fed interest rate cut on deck in just under two weeks, the weak jobs report increases the probability that the Fed will act.
The labor force participation rate popped by 0.2%, up to 63.2%, which is a big move for that number, and hourly earnings increased 0.4% in August. Both reports reflect a tight labor market.
As for the birth/death adjustment, the guessed-at jobs added 93,000 positions to the non-seasonally adjusted employment report for August.
Durable Goods Orders Up 2.1% in July, Core Capital Goods Up 0.4%… Aircraft orders rebounded last month, giving durable goods orders a boost.
What it means – Core capital goods orders for June were revised down from a screaming 1.9% to a more modest, but still solid, 0.9%. The follow-on 0.4% growth in July shows consistent growth driven by orders for communications equipment. On the weak side, manufacturing orders dipped, with primary metals falling 1%, while both fabricated metals and machinery fell less than 1%.
Overall, durable goods orders won’t give the Fed a reason to lower rates or hold steady in September. They’ll have to look elsewhere for a decisive reading on the economy.
Institute of Supply Management Manufacturing Index Shows Contraction at 49.1… Any reading below 50 implies contraction. The measure was forecast to improve modestly from 51.2 to 51.3.
What it means – It wasn’t just one or two things that drove the index into contraction territory. New orders dropped to 47.2, and new export orders fell to 43.3, showing the effects of the trade wars. Prices paid also dipped, coming in at 46.0. The report gives credence to the notion that the economy is losing speed, and it also gives the Fed some cover for lowering rates in two weeks.
The Atlanta Fed’s GDPNow model now forecasts third-quarter GDP at just 1.5%, down from 2.3% last week.
British Parliament Rebuffs Prime Minister Boris Johnson… Parliament voted to require the government to request an extension from the EU for reaching a deal on leaving the economic group and refused to call a general election on Johnson’s timetable.
What it means – Johnson went from an aggressive posture to back on his heels in just a day. The prime minister had postponed the opening of Parliament until October 15, giving the group precious little time to reach an agreement with the EU before the drop-dead date of October 31. It looked like a hard Brexit was imminent. Then Parliament voted to require Johnson to ask for an extension if a deal isn’t reached by October 19, pushing the Brexit deadline to January 31, 2020. Opposition leader Jeremy Corbyn said that a general election, which might give Johnson more power, wouldn’t be held before the date that called for an extension request.
The wrangling leaves Johnson in the weak position of being required to ask the EU for an extension, which it is likely to grant because a hard Brexit would include so many unknowns, including the possibility that Britain walks away from $47 billion in EU liabilities.
Apple, Disney, and Other Companies Issue 30-Year Bond At Less Than 3%… Corporate America is gaining access to borrowed money at record-low costs.
What it means – Apple has $50 billion in cash and cash equivalents, and another $40 billion in marketable securities. So why is the company issuing $7 billion in bonds? Because it’s almost free money.
With 30-year interest rates at record lows, and 10-year rates not far away, now is a great time for companies to sell bonds and horde the cash. It doesn’t matter if they need it, as long as they can pay the cost of carry. By simply investing the money in U.S. Treasury bonds, Apple can reduce the cost of carry to 1%.
Of course, it’s not exactly free. Someone, or some group, pays for this, and that would be savers. Without central bank intervention over the past decade, it’s likely that interest rates would be higher. Central bank action has engineered one of the greatest wealth transfers in history from savers to borrowers in the form of dramatically lower rates in developed nations around the world. If your savings account earns the national average of 0.10%, then at least you can feel good that you’re funding a sweet deal for Apple, Disney, and others on their bonds.
Boston Municipal Court Judge Orders Antifa Members Out of Town… On Saturday, August 31, Antifa members showed up in downtown Boston to protest a Straight Pride Parade. At one point, several Antifa members clashed with police. 36 were arrested, and several were charged with assault and battery on police. At an arraignment for three of them, Judge Thomas Horgan ordered the Antifa members to stay out of Boston or risk jail time. The defendants are allowed in Boston only to confer with lawyers and attend court. One defendant asked if he could visit relatives in the Jamaica Plain section of town. The judge replied that his relatives could visit him somewhere else.
Data supplied by Dent Research/Delray Beach Publishing
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