Key events this week – US non-farm payrolls & labor market update, ISM surveys, US Fed Governor Waller speech, BoC policy meeting
Outlook for the week ahead
This week, the focus will be on the Aug US labor market update and its implications for the path of US interest rate policy.
The message from Fed Chair Powell at Jackson Hole was clear – “the time has come for policy to adjust” as upside inflation risks have diminished and downside risks to the labor market have increased. He expressed increased confidence that inflation is on a sustainable path back to 2% and last week’s PCE inflation data reinforced that view. On the labor market, the Fed Chair reaffirmed some of his comments from the last FOMC meeting. At the last FOMC press conference, the Fed Chair noted that “I would not like to see a material further cooling in the labor market”. Following the weaker-than-expected Jul labor market data, the Fed Chair was clear in his Jackson Hole remarks; “We do not seek or welcome further cooling in labor market conditions”. After Jackson Hole, markets expect rate cuts to begin at the Sep FOMC meeting. The labor market update for Aug could provide important input for determining the initial pace of that easing. So far, markets are pricing a 25bp cut, but still a chance for a 50bp cut (source: CME FedWatch).
This week’s data will offer a broader view of the US labor market, potentially clarifying if the notably weaker Jul report was an outlier. US non-farm payroll growth in Aug is expected to rebound to +164k from +114k in Jul. The unemployment rate is expected to fall back to 4.2% from 4.3% in Jul. Last month, temporary layoffs contributed to the increase in unemployment, along with faster growth in labor supply – both measures will be in focus this week. The average hours worked is expected to rebound to 34.3 in Aug from 34.2 in Jul. Job openings at the end of Jul are expected to continue to ease further to 8m, from 8.184m at the end of Jun. The layoff rate has remained near the series low while quits have also eased. Average hourly earnings are expected to rebound over the month to +0.3% and increase by +3.7% over the year. The weekly initial claims data has stabilized around +230k claims/week. Claims are expected to be +235k this week.
There will be several other releases providing insight into the broader US growth context. The ISM manufacturing PMI is expected to show manufacturing conditions remained weaker at 47.8 in Aug. The ISM services PMI is expected to show a slower pace of expansion at 50.9 in Aug from 51.4 in Jul. US factory orders are expected to rebound by +4.5% in Jul from -3.9% in Jun.
The broader US growth context has remained positive. Last week, the Q2 GDP was revised higher in the second estimate from +2.8% to +3% annualized due in part to higher personal spending. With data still limited for the current quarter, the latest Atlanta Fed GDP Nowcast has the growth run-rate easing slightly to +2.5% so far in Q3.
Fed Governor Waller is scheduled to speak on Friday after the US payrolls and labor market data, providing an update on the Economic Outlook. NY Fed President Williams is also expected to speak on Friday. These will be important speeches before the blackout period next week, ahead of the next FOMC meeting on 17-18 Sep.
The Bank of Canada meets this week and is expected to cut rates by a further 25bps. The BoC has already cut rates at its last two meetings. The Canadian labour market update for Aug will be released at the end of the week. Employment growth is expected to rebound to +25k from -2.8k in Jul. However, the unemployment rate is expected to edge higher to 6.5% in Aug from 6.4% in Jul.
Australian GDP growth for Q2 is expected to lift slightly to +0.2% from +0.1% in Q1. At the last RBA meeting, Governor Bullock noted that growth forecasts had been upgraded due to public demand and a lift in household spending as real wages increased. Data revisions indicated that spending may not have been as weak as previously thought. The RBA Governor will give the annual speech to the Anika Foundation this week – and this usually provides an important update on economic conditions.
Finally, the broader suite of S&P Global PMIs will be released this week for Aug.
This week, the US Treasury will auction and settle approx. $681bn in ST Bills, Notes, and Bonds raising approx. $100bn in new money.
QT this week: Approx $3bn in ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
