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It’s jobs day! Economists are forecasting a net gain of 75,000 for U.S. payrolls in October and a slight bump in the unemployment rate to 3.6%. Wildcards: The United Auto Workers strike at General Motors and Census Bureau hiring could muddy the the numbers. Here’s what to watch.
And now for today’s key economic themes…
Consumers Gonna Consume
U.S. households increased spending heading into the fourth quarter, suggesting consumers have continued to prop up economic growth. Personal-consumption expenditures rose a seasonally adjusted 0.2% in September from the prior month, same as August. Outlays had grown more briskly in the first half of 2019, Sarah Chaney and Paul Kiernan report.
- Consumers are helping lift the economy while manufacturing and business investment falter. They are, however, spending at a less robust pace than last year, aligning with a broader slowdown in economic growth that economists expect to continue.
- The economy grew at a 3.1% pace in the first quarter of the year, 2% in the second and 1.9% in the third. Though very preliminary, forecasters at Macroeconomic Advisers are tracking fourth-quarter growth at 1.7%.
WHAT TO WATCH TODAY
U.S. nonfarm payrolls for October are expected to increase by 75,000 from the prior month and the unemployment rate is expected to tick up to 3.6%. (8:30 a.m. ET)
IHS Markit’s U.S. manufacturing index for October is expected to hold steady at 51.5. (9:45 a.m. ET)
The Institute for Supply Management’s manufacturing index for October is expected to rise to 49.1 from 47.8 a month earlier. (10 a.m. ET)
U.S. construction spending for September is expected to increase 0.2% from the prior month. (10 a.m. ET)
The Baker Hughes rig count is out at 1 p.m. ET.
The Dallas Fed’s Robert Kaplan participates in a moderated Q&A at 9:30 a.m. ET, the New York Fed’s John Williams speaks in Newark, N.J., at noon and again at 2:30 p.m. ET, Vice Chairman Richard Clarida speaks at a Japan Society Special Luncheon at 1 p.m. ET, and Vice Chairman Randal Quarles speaks about Friedrich Hayek and the price system at 1 p.m. ET.
TOP STORIES
No Smoke, No Heat
Have wage gains topped out for this expansion? The employment cost index, a favorite measure at the Federal Reserve, shows wage and salary pressure is modest and apparently not building—despite an unemployment rate at a 50-year low.
- For private-sector workers, third-quarter wages and salaries advanced 3% from a year earlier for the third straight quarter. They had been rising 3.1% in the latter half of 2018.
- That mirrors other indicators. Average hourly earnings and a measure of small business plans to raise wages have both come off of recent peaks.
- Economists are forecasting a 3% annual gain for average hourly earnings in October, a small pickup from September but still well below the 3.4% gain workers enjoyed in February.
“The tame momentum in compensation growth, along with the moderation in other wage metrics in recent months, suggests that wage growth has likely reached a cycle peak,” says Oxford Economics economist Kathy Bostjancic.
- Good news: Weaker wage pressures could keep inflation in check, giving the Fed plenty of leeway to keep rates low.
- Bad news: Slower wage gains could cap consumer spending, the main driver of economic growth in recent quarters.
Looking for Inflation
U.S. inflation remained soft in September. The Fed’s preferred gauge, the personal-consumption expenditures price index, fell a seasonally adjusted 0.01% last month from August, its weakest monthly reading since January. From a year earlier, the index was up 1.33%. An index of so-called core prices, which excludes volatile food and energy components, rose 1.67% on the year. The data suggest a pickup in prices over the summer may have been short-lived. Inflation continues to run lower than the Fed’s 2% target—and officials remain concerned about the risk of falling prices in a downturn, Paul Kiernan and Sarah Chaney report.
Phase 1
President Trump said China and the U.S. are in the process of selecting a new site to sign “phase one” of a trade agreement between the two countries. Mr. Trump had hoped to ink the deal during a November Asia-Pacific Economic Cooperation summit in Chile, but Chilean President Sebastian Piñera canceled the gathering amid widening protests, Andrew Restuccia reports.
Factory Ups and Downs
A private gauge of China’s factory activity showed an expansion for the third straight month in October. The Caixin China manufacturing purchasing managers index rose to a 32-month high of 51.7, above the 50 mark that separates expansion from contraction and contrasting with the official gauge showing a fall in activity for the sixth consecutive month. Elsewhere in the world, factory figures were more bleak: Japan, South Korea, Indonesia, Taiwan and Malaysia each reported contractions in activity. India’s manufacturing sector grew, but at the weakest pace in two years.
Demographics, Destiny and China
China has one of the lowest fertility rates in the world, and recent data suggest its demographic bind is even more serious than thought. In 1970, China’s median age was nearly 10 years below that of the U.S. By 2015, it was higher. The prospect of fewer and fewer workers to support retirees amid a rising median age is looming large over the Chinese economy. Nonetheless, birth limits remain in place. Couples are now allowed to have two children, but not more than that—despite the birth numbers and government expectations that the population will start to decline in 2030, Liyan Qi and Fanfan Wang report.
Charm Offensive
Christine Lagarde takes over as president of the European Central Bank today. The 63-year-old Frenchwoman will have to break a deadlock among eurozone policy makers over how to support the region’s faltering economy. In the days before assuming the presidency, Ms. Lagarde gave a hint of how she will seek consensus. A rash of interviews—including one in which she explicitly criticized President Trump—and a charm offensive in Germany, the ECB’s biggest critic, could presage a very different style from outgoing President Mario Draghi, a veteran central banker who communicated through carefully controlled speeches and news conferences, Tom Fairless reports.
WHAT ELSE WE’RE READING
That third kid, woah. “A third birth induced by a twin birth or the same-sex composition of the first two children or twin birth at the second parity increases the probability of alcohol consumption by about 5.0 percentage points. Both on the extensive and intensive margins, a larger family size also leads to a substantial increase in maternal binge drinking,” Clemson University’s Sarah Wilson writes in a job market paper.
After the Fukushima Daiichi nuclear accident in Japan, nuclear power stations were closed and nuclear power was replaced by fossil fuels. That cause higher energy prices, less energy consumption and a more deaths during cold spells. “We estimate that the increase in mortality from higher electricity prices outnumbers the mortality from the accident itself, suggesting the decision to cease nuclear production has contributed to more deaths than the accident itself,” Matthew Neidell, Shinsuke Uchida and Marcella Veronesi write in a National Bureau of Economic Research working paper.
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