In the week before the November 8 mid-term elections, it may be hard to look at the economic data and/or FOMC decision except through the lens of politics. I anticipate a lot of conspiracy-tinged talk if the numbers are favorable to the Democratic narrative, and thundering rhetoric about doom and incompetence if it leans toward the Republicans’ view. The bottom line is that the U.S. government’s statistical agencies are not going to manipulate the numbers to influence the election. It is virtually impossible to contemplate the level of interference that would be required to do so without detection and exposure at some level of collection, preparation, and publication.
With that off my mind, the two high points next week are the FOMC announcement and Chair Jerome Powell’s press briefing at 14:00 ET and 14:30 ET, respectively, on Thursday and the October Employment Situation on Friday at 8:30 ET.
Fed policymakers have widely and universally proclaimed that inflation is too high and further rate hikes are needed to combat it on the demand side. Recent inflation data suggest that the record three consecutive 75 basis point increases at the last meetings have been insufficient. Another 75 basis point hike is expected after the November 1-2 meeting. Now in question is whether this will be the last one of this size in this rate cycle. Since March, the FOMC has raised rates a cumulative 300 basis points. If realized, the hike at the next meeting will mean the fed funds rate will reach a range of 3.75 to 4.00 percent, a rate not seen since January 2008. It will also mean that the FOMC forecasts for the fed funds rate in the Summary of Economic Projections (SEP) will have only another 50 basis point increase anticipated for 2022. Could the statement and/or Chair Powell’s remarks suggest that the FOMC is going to slow down the upward movement in rates while they see if previous rate hikes start to catch up? I think they might be considering the lags for monetary policy changes still to be felt.
If there is one thing that has kept pronouncements of a U.S. recession at bay, it is the strength of the labor market. Although there are signs that some of the imbalance in labor supply and demand is improving, to all appearances there are still plentiful jobs out there, and those experiencing layoffs are finding work fairly quickly. The size of the labor force has yet to recover to pre-pandemic levels by a long shot. The payroll numbers for October should continue to see job growth, although the lack of workers in the service sector – notably retail and, leisure and hospitality – may look soft compared to the normal seasonal hiring practices. This may also be true for the transportation sector where increased online shopping means truckers and delivery persons may be needed more than ever.
Econoday’s consensus for October nonfarm payroll growth is 210, 000 within a tight consensus range between 125,000 to 250,000. This would compare with 263,000 in September and would be one of the lowest totals of the pandemic recovery. How accurate have recent forecasts been? Very accurate. September’s result was only 13,000 above Econoday’s consensus while August’s 315,000 level exceeded the consensus by only 22,000. Econoday’s Consensus Divergence Index has been hovering right near the zero line, ending last week at minus 3 and at minus 5 excluding price effects to indicate that forecasters have been hitting their marks, in turn suggesting that the Federal Reserve will be holding to its policy path — that is a 75-basis-point hike at Wednesday’s FOMC.
