During a busy data week, investors will get the U.S. jobs report for September on Friday and hear from a handful of Federal Reserve speakers, including Chairman Ben S. Bernanke himself on Wednesday. Market participants will also be keeping a close eye on budget negotiations in Washington.
Economists expect another month of modest improvement in the labor market, and forecast nonfarm payrolls growth of 180,000 jobs. That’s slightly above the increase of 169,000 in August and the six-month moving average of 160,000. This average has dropped recently because of more-modest job growth in July and August, and the sizable downward revisions recorded in those months.
The unemployment rate probably held steady at 7.3 percent in September, but there’s a good possibility that it could have declined to 7.2 percent. Average hours worked in the private sector should hold steady at 34.5 per week, while the consensus estimate looks for a modest 0.2 percent month-over-month pickup in average hourly earnings.
The Fed will be paying close attention to the figures in this last payrolls report before the Federal Open Market Committee meeting in late October. “Unless jobs surprise to the upside, the likelihood of a taper at the October meeting will stay quite low,” Paul Edelstein, IHS Global Insight U.S. economist, opined in a note to clients.
Other data to be released during the week include the Institute for Supply Management, or ISM, reports on manufacturing and nonmanufacturing activity, each of which is expected to show a slightly slower pace of expansion in September than in August. In contrast, construction spending should be strong.
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After a welcome hiatus, brinkmanship budget battles have returned to Washington. If a stopgap spending bill isn’t passed by Tuesday, the government will shut down. But even if such a bill is passed, it might last until only mid-November, while the federal debt ceiling will have to be raised within a few weeks.
“The two Houses of Congress are currently nowhere near an agreement on a continuing resolution to extend the government’s spending authority before the end of Monday,” Paul Ashworth, an economist at Capital Economics, said in a note.
A shutdown caused by a failure to raise the debt ceiling would be potentially more disruptive to the economy and the markets than a shutdown triggered by a failure to agree on a stopgap spending bill. The former could mean not just the furloughing of nonessential Federal employees, but also that Social Security payments are missed, government contractors aren’t paid and possibly even that holders of Treasury notes and bonds won’t receive their coupon payments, Ashworth said.
Understandably, there is now even some doubt about whether September’s payrolls figures will be released as scheduled on Friday. If Congress can’t agree to extend the Federal government’s spending authority by Monday, the Bureau of Labor Statistics staff will presumably be put on unpaid leave on Tuesday, as part of the resulting shutdown. All government economic data releases will be suspended.
According to Ashworth, a similar budget spat in 1995, between President Bill Clinton, a Democrat, and House of Representatives Majority Leader Newt Gingrich, a Republican, led to a five-day shutdown in November followed by a 21-day shutdown in the second half of December and early January.
As many as 800,000 federal employees were put on unpaid leave and federal spending contracted by an annualized 14.2 percent in the fourth quarter of 1995, subtracting 1 percent from annualized gross domestic product growth.
“Those mid-1990s shutdowns were triggered by a failure to pass a continuing resolution authorizing government spending. America could be plunged into the same type of shutdown on Monday, but even worse lies ahead if the debt ceiling isn’t raised later this month,” Ashworth said.
IHS’ Edelstein said he believes a spending bill will pass, but it could be a nail-biter and another bad week for stocks. “We also expect Congress to raise the debt ceiling, but perhaps with some concessions on spending,” he added.
The further rise in the key euro-zone surveys in September suggests the economic recovery there may be gathering pace. While another quarter of reasonably healthy growth appears likely, the economy could start to lose a bit of steam in the autumn.
Data this week are likely to show euro-zone unemployment remained at a record high in August, while inflation may have fallen to a three-and-one-half year low in September, according to Capital Economics’ James Howat. “That said, we expect the European Central Bank to hold rates on Wednesday, although it may announce more long-term loans,” Howat said.
The six members of the ECB’s executive board are expected to come up with a proposal for the publication of the minutes of discussions in the autumn, possibly at this meeting.
Laurence Boone, the chief European economist at Bank of America Merrill Lynch, said he expects the question-and-answer session at the ECB’s postmeeting press conference to focus to a large extent on long-term refinancing operations, or LTRO, as well as on the bank’s balance-sheet assessment.
It’s will be an extremely busy week ahead for Japan with the usual end-of-month data rush and the publication of the third-quarter Tankan survey followed by the government’s decision on the planned consumption-tax hike, as well as the first of two Bank of Japan policy board meetings in October.
The key event will be Prime Minister Shinzo Abe’s announcement on whether the government will go ahead with the planned consumption tax hike, to 8 percent from 5 percent in April next year. Abe has stressed he will announce the decision after the release of the Tankan survey.
“We expect the Tankan to show that the economic recovery has retained sufficient momentum to allow Abe to give the green light for the tax hike. But at the same time, earlier promises of fiscal consolidation will have to be watered down,” said Marcel Thieliant, economist at Capital Economics.
Masayuki Kichikawa, chief Japan economist at Bank of America-Merrill Lynch, said he expects the Bank of Japan to keep its monetary policy unchanged at this week’s board meeting, which concludes on Friday.
But BoJ Gov. Haruhiko Kuroda’s press conference will still be worth watching closely for any hints of tension between the central bank and the government.
A weeklong national holiday begins on Oct. 1 in China. But the National Bureau of Statistics will still be releasing its purchasing managers indexes, or PMIs, for both the manufacturing and nonmanufacturing sectors.
Below are entries on the economic calendar Sept. 30-Oct. 4. All listed times are EDT.
9:45 a.m. -- Economists expect the Chicago PMI to increase to 54.3 in September from 53.0 in August. This would mark the third consecutive increase in the indicator.
Euro zone -- ECB Executive Board Member Benoit Coeure speaks in Milan, Italy, on financing the recovery after the crisis.
Euro zone -- ECB Executive Board Member Yves Mersch speaks at a European Investment Bank conference in Luxembourg.
Euro zone -- September flash consumer price index and harmonized index of consumer prices.
Japan -- Q3 Tankan DI for manufacturing/nonmanufacturing index.
China -- National Bureau of Statistics manufacturing PMI for September.
All Day -- Annualized vehicle sales should come in at 16.0 million units in September, in line with the August reading.
8:58 a.m. -- Markit manufacturing PMI for September, final reading.
10 a.m. -- Construction spending likely rose by 0.4 percent in August, which builds on the healthy 0.6 percent increase seen in July. Private residential and nonresidential outlays probably were partly offset by a further modest decline in the public-sector component.
10 a.m. -- After three consecutive monthly increases, the ISM manufacturing index will likely show a decrease in September. Economists expect the index to fall to 55.0 in September from 55.7 in August.
France -- Ordinary parliamentary session.
Australia -- Reserve Bank of Australia cash rate.
Japan -- September auto sales.
Euro zone -- September final manufacturing PMI.
Euro zone -- August unemployment rate.
7 a.m. -- The Mortgage Bankers Association’s, or MBA’s, Mortgage Index for the week ending Sept. 27.
8:15 a.m. -- Economists forecast Automatic Data Processing, or ADP, private-payrolls growth of 180,000 in September, up from 176,000 in August. That’s higher than the six-month moving average of 164,000. In August, ADP payrolls came in 7,000 higher than the government’s jobs report.
Noon -- Federal Reserve Bank of Boston President Eric S. Rosengren (a voter on the FOMC this year) speaks before a luncheon hosted by the New England Federal Credit Union and Lake Champlain Regional Chamber of Commerce in South Burlington, Vt.
3:20 p.m. -- Federal Reserve Bank of St. Louis President James Bullard (a voter on the FOMC this year) gives opening remarks before the “Community Banking in the 21st Century” conference hosted by the St. Louis Fed.
3:30 p.m. -- Federal Reserve Chairman Ben S. Bernanke (a voter on the FOMC) gives brief welcome remarks before the “Community Banking in the 21st Century” conference hosted by the St. Louis Fed.
Poland -- Repo rate.
Euro zone -- ECB interest-rate announcement and press conference.
China -- National Bureau of Statistics nonmanufacturing PMI for September.
7:30 a.m. -- Challenger layoffs for September.
8:30 a.m. -- Economists expect initial jobless claims to climb to 315,000 for the week ending Sept. 28 from 305,000 in the prior week.
10 a.m. -- Economists expect factory orders to increase by 0.2 percent in August, with a modest gain in nondurable orders adding to the 0.1 percent rise in durable orders (as reported in the preliminary release).
10 a.m. -- After rising to a post-recession high of 58.6 in August, economists look for a small drop to 57.5 in the September ISM nonmanufacturing index.
11 a.m. -- Federal Reserve Bank of San Francisco President John C. Williams (a nonvoter on the FOMC this year) speaks at an event during the University of California at San Diego Economics Roundtable Lecture Series.
1 p.m. -- Federal Reserve Bank of Atlanta President Dennis P. Lockhart (a nonvoter on the FOMC this year) gives welcome remarks before the Atlanta Fed’s Center for Human Capital Studies conference, “Recent Developments in the U.S. Labor Market: Analysis and Policy Responses,” in Atlanta.
1:15 p.m. -- Federal Reserve Bank of Dallas President Richard W. Fisher (a nonvoter on the FOMC this year) participates in a discussion on “Effects of Uncertainty on the Economic Recovery” before the “Causes and Macroeconomic Consequences of Uncertainty” conference sponsored by the Dallas Fed and Richard B. Johnson Center for Economic Studies at Southern Methodist University in Dallas.
1:30 p.m. -- Federal Reserve Board Gov. Jerome H. Powell (a voter on the FOMC) speaks on “Community Banking: Connecting Research and Policy” before the “Community Banking in the 21st Century” conference hosted by the Federal Reserve Bank of St. Louis.
5:30 p.m. -- Federal Reserve Bank of Dallas President Richard W. Fisher (a nonvoter on the FOMC this year) gives an economic update at the Stephens CEO Summit in Little Rock, Ark.
Euro zone -- Final September services PMI.
8:30 a.m. -- For the September employment report, economists expect headline nonfarm payrolls to increase by 180,000 and private payrolls to rise by 182,000, while the unemployment rate remains unchanged at 7.3 percent. Elsewhere in the report, economists look for average hourly earnings to rise by 0.2 percent and for average weekly hours to hold steady at 34.5.
8:30 a.m. -- Federal Reserve Bank of Dallas President Richard W. Fisher (a nonvoter on the FOMC this year) gives an economic update before the Central Arkansas Risk Management Association in Little Rock, Ark.
9:15 a.m. -- Federal Reserve Bank of New York President William C. Dudley (a voter on the FOMC) gives introductory remarks before the New York Fed’s “‘Fire Sales’ as a Driver of Systemic Risk in Tri-Party Repo and Other Secured Funding Markets” workshop.
9:30 a.m. -- Federal Reserve Board Gov. Jeremy C. Stein (a voter on the FOMC) speaks on “Fire Sales and Securities Financing Transactions” at the Federal Reserve Bank of New York “‘Fire Sales’ as a Driver of Systemic Risk in Tri-Party Repo and Other Secured Funding Markets” workshop.
12:30 p.m. -- Federal Reserve Bank of Richmond President Jeffrey M. Lacker (a nonvoter on the FOMC this year) speaks on “Human Capital Investment as a Major Financial Decision” before the Council of Economic Education’s 52nd Annual Conference in Baltimore.
1:45 p.m. -- Federal Reserve Bank of Minneapolis President Narayana Kocherlakota (a nonvoter on the FOMC this year) speaks on “Monetary Policy Strategy” before the Bank Holding Company Association Fall Seminar in Bloomington, Minn.
Japan -- Bank of Japan target rate.
Italy -- Senate committee final vote on Silvio Berlusconi’s immunity.
Euro zone -- August producer price index.
Sources: Central banks, European Commission, Reuters, Market News, Capital Economics, Barclays, Bank of America Merrill Lynch.