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Pressing the Pause Button
The Federal Reserve cut interest rates for the third time this year but signaled it wouldn’t reduce them further unless the economy slowed sharply, Nick Timiraos reports.
- Fed Chairman Jerome Powell didn’t rule out additional cuts if the central bank’s favorable outlook on the economy faltered. But the Fed’s policy statement signaled a higher hurdle for rate reductions after the latest move.
- The takeaway: From July until Wednesday, “the data needed to improve for the Fed not to cut,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. But going forward, “you need the data to deteriorate to justify a cut.”
WHAT TO WATCH TODAY
U.S. consumer spending for September is expected to rise 0.2% from the prior month. (8:30 a.m. ET)
The U.S. personal-consumption-expenditure price index excluding food and energy is expected to rise 0.1% in September from a month earlier and 1.7% from a year earlier. (8:30 a.m. ET)
The U.S. employment cost index for the third quarter is expected to rise 0.7% from the prior quarter. (8:30 a.m. ET)
U.S. jobless claims are expected to rise to 215,000 from 212,000 the prior week. (8:30 a.m. ET)
The Chicago purchasing managers index for October is expected to rise to 48.5 from 47.1 a month earlier. (9:45 a.m. ET)
China’s Caixin manufacturing index is out at 9:45 p.m. ET.
TOP STORIES
All Eyes on Employment
So what would the Fed need to see to justify another cut? A deteriorating labor market would be a sure warning signal for policy makers. Next up: The October jobs report is out Friday at 8:30 a.m. ET. Economists expect a net gain of 75,000 jobs for the month even after a strike at General Motors temporarily knocks tens of thousands of workers off of payrolls and muddies the picture. Still, between the strike and a broad slowdown in hiring this year, it’s possible the 108-month streak of positive employment growth—by far the longest on record—could be in jeopardy.
Keep an eye on unemployment. Economists expect Friday’s jobs report to show the unemployment rate ticked up from a 50-year low to 3.6% in October. A longer-running trend suggests the unemployment rate for the cycle may have bottomed out.
- For much of the expansion, employment has grown at a faster rate than the labor force. That’s because those in the workforce but without jobs—the unemployed—were being absorbed onto payrolls. Lately, though, employment and labor force are growing at nearly the same rate.
- Such a convergence happens from time-to-time and it’s benign. But it always occurs before the unemployment rate starts to rise as the economy heads into a recession. If economic growth cools, and employers create fewer jobs, expect to see the unemployment rate rise from historic lows in part because the population interested in work grows faster than the number of jobs being created.
—Eric Morath
China’s Factory Funk
Chinese manufacturing activity fell to an eight-month low in October. The drop in the country’s official nonmanufacturing index—nearly a full point to its lowest level since early 2016—was even more striking. Why isn’t China’s central bank doing more to help the economy? The simple reality is that even if Beijing wants to shore up growth, there isn’t much it can do in the short run, Nathaniel Taplin writes.
One thing that could help China’s economy, at least a little: a trade deal with the U.S. China’s Commerce Ministry Thursday said trade talks remained on track despite the cancellation of an Asia-Pacific Economic Cooperation summit where Presidents Trump and Xi Jinping had hoped to sign a “phase 1” accord. Chile on Wednesday canceled the November summit in the capital city of Santiago after weeks of protests, Liyan Qi reports, complicating plans for a possible deal.
Meanwhile, protests dragged Hong Kong into a technical recession in the third quarter. Official figures may undersell the speed and severity of the downturn for shopkeepers, restaurant owners and others with consumer-facing businesses, Steven Russolillo reports.
Eurozone Stuck at a Crawl
The eurozone’s economic expansion continued at a crawl in the three months through September, with little prospect of a quick return to robust growth. Third-quarter gross domestic product increased at an annualized 0.8% pace, same as the second quarter. It left the eurozone once again trailing behind the U.S., where GDP grew 1.9% in the third quarter. The eurozone’s performance indicates it is one of the weakest spots in a global economy that has seen a widespread cooling this year, Paul Hannon reports.
Bank of Japan Hints at a Rate Cut
The Bank of Japan on Thursday left interest rates unchanged but suggested future cuts are possible. The BOJ said it expected to keep its policy rates at their current levels or reduce them so long as uncertainties remain about reaching the central bank’s 2% inflation target. Previously it had said it would keep rates extremely low until next year without specifying that further lowering was possible, Megumi Fujikawa reports.
UAW Strikes Tentative Deal With Ford
One for the good news column: The United Auto Workers said it has struck a new tentative labor deal with Ford, as union bargainers look to move quickly to wrap up contract talks following a 40-day strike at General Motors. The proposed agreement, which still must be ratified by Ford’s UAW-represented workers, clears the way for the union to turn attention next to negotiations with Fiat Chrysler.
WHAT ELSE WE’RE READING
The U.S. repatriated about 400,000 Mexicans from 1929 to 1934. “Politicians at that time argued that it would give jobs to American workers and attenuate the unemployment problems caused by the Great Depression. … Overall, not only did politicians’ claims not materialize, but it seems like the repatriation program may have hurt some native workers. Specifically, the repatriation of Mexicans, who were mostly laborers and farm workers, reduced demand for other jobs in the local economy mainly held by natives,” Jongkwan Lee, Giovanni Peri and Vasil Yasenov write in an Institute of Labor Economics discussion paper.
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