November 1, 2018

Strong jobs report expected ahead of midterms

Economists expect positive October jobs numbers from the Labor Department on Friday.

In a poll conducted by Refinitiv, economists estimate that the economy added 190,000 new jobs in October, despite continued disruption from hurricanes. That would equal the average over the 20 months since Trump took office.

They also anticipate that the unemployment rate held steady at its 49-year low of 3.7%. Paychecks are also expected to grow faster than they have in recent years.

The employment cost index released by the Bureau of Labor Statistics on Wednesday showed wages and salaries rose 2.9% over the year ending in September.

A strong jobs number could give President Donald Trump a potential boost heading into the last weekend of the campaign. It would shore up Trump's economic message going into the weekend, after a month of market turmoil that has mostly erased gains for the year for the major indices.

At a White House event promoting workforce training on Wednesday, Trump touted the fact that for several months job openings have exceeded the number of people looking for work for the first time since the Bureau of Labor Statistics started tracking openings in 2000.

"You didn't have a choice just a few years ago, and now you have a choice," Trump said. "We actually need workers now. That's a good thing to be saying."

The economy also grew at a quick clip in the third quarter, posting 3.5% growth propelled largely by government and consumer spending. Consumer confidence reached its highest level in 18 years in October.

However, signs of trouble are looming on the horizon.

Most economists expect growth to slow down as any effect from the business tax cuts wear off. Business investment already slowed markedly in the third quarter, especially on commercial buildings.

The housing market has also run into trouble as the Federal Reserve continues to raise interest rates. New monthly home sales have fallen 22% since their post-recession high of 712,000 in November 2017 and new residential investment has declined for the past three quarters.

Although inflation remains low, that may start to change. Manufacturers across the country are reporting sharp increases in costs for raw materials, partly as a consequence of the White House's tariffs, and they're starting to pass them on to clients as much as they can.

The National Association of Business Economics' business conditions survey, which asks 127 corporate economists how their firms are doing, found that their price index reached the highest point since 2006 in October. Among goods-producing companies, 38% said they had delayed investments because of the ongoing trade war.

None of this is expected to lead to a crash similar to what happened a decade ago --- but the risk of a recession rises if the tariff tit-for-tat between the United States and the rest of the world escalates enough to freeze international trade, or if the Fed starts raising interest rates too fast in response to the labor market overheating. As minutes of recent Fed meetings and speeches by Fed presidents indicate, they're well aware of the dangers.

Said Atlanta Fed president Ralph Bostic: "I intend to weigh the risk of acting too swiftly and choking off the expansion against the risk of having the economy overheat and get into a situation with rising inflation and inflation expectations that would necessitate a muscular policy response."

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