Employment Report Looks Like Swing and Miss, but Bad News Could Be Good News
Jobs data looks like it will disappoint, but bad economic news could be good news for rate cuts and the market.
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*ADP jobs data missed expectations, layoffs jump according to Challenger
*Why this morning’s August Service PMI data will be important
*Bad economic news today, tomorrow could be good news for rate cuts and the market
In this week’s The Week Ahead video, we laid out the key August data that we will be focusing on this week. Arguably, Thursday is the second-biggest day for that with Friday's August Employment Report being the focal point. Setting us up for that is Thursday morning’s August Employment Change Report and the back-to-back August Service PMI reports out soon after stocks begin trading. What we’ve seen so far on Thursday morning suggests we could see a swing and a miss with the August Employment Report relative to the 160,000 jobs the market expects it to deliver.
ADP Jobs Data Missed Expectations, Layoffs Jump
We say this because ADP’s August report found just 99,000 jobs created during the month, well short of the 122,000 consensus. That figure also marked the smallest payroll gain since January 2021. To that, we can add the findings of Thursday morning’s Challenger Job Cuts report for August that found layoffs spiked to 75,891, a 193% increase from the 25,885 cuts in July. Challenger’s report also brings another look at job creation, noting that, so far, the pace of hiring by U.S. employers is the lowest since Challenger began tracking in 2005.
Both of those data points point to a slower economy, which backs the other economic data received so far this week and what we found in the Fed’s latest Beige Book Report. ADP’s report also showed the pace of wage gains remained little changed in August compared to July with annual pay for job-stayers up 4.8% year over year and up 7.3% for job-changers.
Why Thursday Morning’s August Service PMI Data Will Be Important
Coming up, we have the back-to-back August Service PMI reports. Because ISM’s data is an input into GDP calculations, it tends to get a greater focus, but we prefer to compare and contrast the two. Following the August Manufacturing PMIs that showed that part of the economy remained in contraction territory for 11 of the past 12 months, we will want assurances that the Service sector continues to carry the overall U.S. economy.
For us, that means looking at the headline PMI figure but also new order and backlog data as well. We’ll also be paying close attention to what these reports say about the pace of hiring in the Services sector. If the commentary points to weaker hiring compared to July, it will be another reason to think Friday's August Employment Report could disappoint.
Here’s the thing: The market is inclined to welcome weaker-than-expected data because it would support the expectation for the Fed to deliver 100 basis points of rate cuts before the end of this year. In other words, bad news is potential good news for the market while news that is too good for the economy could force the market to re-think what the Fed will deliver in the last four months of 2024. What will be key, however, is data that supports a soft-landing narrative, not one that suggests the economy is about to roll over hard.
While we’ll get other August data next week and the week after, given the Fed’s increasing focus on the jobs market, it’s fair to think Thursday and Friday will have a heavy hand in what the Fed says and does on September 18.
What’s Ahead
We’ll be back to break the PMI reports down but also to share some Thursday morning news that relates to our holdings, including Foxconn’s August revenue report and why Verizon’s VZ acquisition of Frontier Communications FYBR is a positive for our position in Morgan Stanley MS.
Ahead of those reports out later this morning, Apple’s AAPL key manufacturing partner Foxconn reported its August revenue soared just shy of 33% year over year, led by demand for servers powering…. wait for it… AI servers. While some may quibble that Foxconn’s August revenue dipped compared to July, what should stand out is its quarter-to-date revenue is up 27% year over year with notable strength not only in servers but also in computing and cloud and networking products. Those comments are very supportive of our AI, Cloud Computing and Digital Infrastructure models.
At the time of publication, TheStreet Pro Portfolio was long MS and AAPL.
