It was a slower week than expected as the government shutdown prevented reports on jobless claims and the much anticipated nonfarm payroll report for September. An unfortunate situation but there was low expectations of a good report given the negative revisions from August despite GDP running at 3.8%.
Normally, a cooling job market indicates a contraction in growth but we have outliers in this environment. For one, the federal government is shrinking its footprint which is a rarity and may accelerate because of the shutdown. In addition, corporate America is gaining efficiencies at an accelerating pace via artificial intelligence software which means administrative jobs and tasks are being consolidated which helps with profitability.
There is other data to consider that was released this week:
The ISM Non-Manufacturing Index dropped to 50.0 in September, right at the breakeven line between expansion and contraction. New orders slowed sharply and service-sector employment remained weak, signaling fading business momentum.
ADP reports private payrolls every month and they showed a downside surprise -32K in September, suggesting that hiring demand continues to cool. The unemployment rate likely held near 4.3%, but job openings have narrowed considerably from last year’s peak.
The Conference Board’s Confidence Index slipped to 94.2 from 97.8 in August, with expectations dropping to recession-warning levels. Consumers cited concerns about job security, incomes, and the general economic outlook.
Federal Reserve Outlook
Investors now see a strong chance of a 25-basis-point rate cut later this year. However, Fed officials remain cautious as service-sector inflation remains sticky and overall price pressures have not fully eased. We can see below on the left side of the yield curve that t-bills are pricing in lower interest rates perhaps down to 3.5% in the coming year.
The S&P 500
Equity investors are focused on profits and they have been good this year for most sectors. The latter half of October will be the deluge of Q3 earnings reports and it will kick-off on the 14th. In the meantime, you can see in the chart below that the S&P 500 remains in its most recent trend channel (blue lines) and it looks to me that 6975 may be achieved in the coming months.
The equity markets are looking past the government shutdown as economic growth remains solid and the Fed will remain dovish until there is greater confidence in the stability of the job markets.
Notables for next week are the Fed minutes from their last meeting and Chair Powell will be making a public speaking appearance. If the government reopens, we should see the September payroll report next Friday but the earnings releases mid-month will be the most important item to consider for the remainder of 2025.
Thank you for being a reader!
President, Kisco Capital
