Two reports released this week could pose problems for a third party to leave on Friday – the Department of Labor's non-agricultural payroll count, considered one of the most important measures of economic vitality.
The Institute for Supply Manufacturing's sentiment measures for manufacturing and services were far below Wall Street's expectations and, most importantly, fueled concern that the US is heading towards a significant slowdown or even a recession.
On the job side, specifically, the news was not good: ISM's manufacturing survey, released Tuesday, indicated that 46.3% of companies are hiring, pointing to contraction across the industry. The non-manufacturing survey released Thursday showed only 50.4% planning to hire in the services sector, a level that barely occurs in expansionary territory.
Taken together, the readings point to weak optimism, and the likelihood that an economy that has recently been adding workers at a rate of over 200,000 per month is in the midst of a substantial slowdown.
"They are very bad. They scare me," said Jim Paulsen, chief investment strategist at The Leuthold Group. "But I still think this is probably just another tough slowdown."
Still, he suspects that this "soft" data, or based on feelings and intentions, can translate into hard data that measures headcount and activity.
"I said all the time there is probably a 1 in 4 chance of having a recession just because of a freeze in confidence. That's how it happens," he said. "Suddenly consumers and businesses say, 'Oh wait, let's see what's going to happen.' You know what's going to happen. Everyone waits."
At the moment, economists polled by Dow Jones expect the Bureau of Labor Statistics to report Friday that nonfarm payrolls increased by 145,000 in September, while the unemployment rate probably remained at the 50-year low of 3, 7%. The final count could be substantially below that, according to Joseph LaVorgna, Natixis' chief economist for the Americas, who said ISM employment rates are "highly correlated with non-agricultural payrolls." LaVorgna said he expects Friday's figure to be as low as 85,000.
Some positive signs
Certainly, other payroll growth measures show that the labor market is still holding steady.
ADP / Moody's Analytics private hire count indicated growth of 135,000 in the month, which, depending on the Wall Street estimate you follow, was slightly above or below expectations. Weekly unemployment claims rose to 219,000, slightly above expectations, but still consistent with what has been a long-term downtrend.
Economists, however, were concerned that ISM numbers point to future weakness.
The readings of the two surveys are really consistent with nonfarm payroll growth of about 50,000, according to economists Ian Shepherdson of Pantheon Macroeconomics and Michael Pearce of Capital Economics.
In fact, Shepherdson said ISM's service survey "has overestimated job growth for most of this year and, if it persists, zero payroll readings are not far off."
In fact, the trend was already noticeably lower in 2019, with average monthly growth of 158,000 well below the pace of 223,000 a year ago.
On the bright side: Paulsen said payroll earnings are almost at the right level to be sustainable in a market where the unemployment rate is so low.
"Going out like this scares everyone, but if you think about it, that's exactly what should happen to prevent overheating," he said. "We need to slow down payroll growth to just over 100,000 a month if we want to persist, which is probably happening. We're interpreting this as & # 39; Oh boy, they're drifting away! & # 39; I think which is less about retreating than we can't find the bodies so we can't grow that fast. "