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AUTHOR: Jason J. Roque, CFP®, APMA®
TITLE: Investment Adviser Rep – CCO TAGS: ISM, WAGES, BREXIT, GERMANY |
“See the forest for the trees” is what they say… Well, it seems like the forest might be on fire…
Manufacturing
Manufacturing continues to be the focus of the markets. ISM manufacturing came in at 47.8 for September. This signals contraction, while ISM non-manufacturing services fell to 52.6, dangerously close to contraction. 50 marks the line of contraction and expansion.
Unemployment
On the surface, the employment landscape looks like a positive, however, it should be remembered that employment data is a lagging indicator. Unemployment fell to 3.5% the lowest level in half a century. What is the impact the participation rate had on the figure? If less people participate in the work force, the unemployment number will fall. That was not the case this time. Participation held steady at 63.2%. On the other hand, there was one concerning statistic from this month’s report; wage increases slowed from their previous pace of 3.2% to 2.9%. Slowing wage growth reduces discretionary spending for consumers, the current strength of this economy.
Brexit
Prime Minister Boris Johnson has proposed a deal that will likely get through the house of commons but is unlikely to be accepted by the European Union (EU). If this effort fails, he will be required to request an extension to Brexit. It is possible the EU would provide an extension unprompted in order to avoid a no deal Brexit.
Germany
A respected German think tank called for government stimulus over a balanced budget, given the economic hardships the economy is facing. Germany, an export economy, has been hit hard by Brexit fears and the US/China trade dispute. Perennially, a political appetite fueled by austerity is having to consider deficit spending to offset the trade fears that have slowed their economy.
Conclusion
Economic data points to a slowdown, not only domestically, but in the global economy. When bad news broke last week, markets rallied, on HOPES that the Federal Reserve Bank (FRB) would cut interest rates. This rally is a fool’s errand of buying high, because it might go a little higher. Ultimately, any FRB action would be because the economy is weakening. People are busy looking at the tree in front of them rather than noticing that the forest is on fire…
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