Stocks fell early in the week as disappointing PMI reports raised recession fears but rallied on Thursday and Friday on decent jobs numbers. Investors are expecting another Fed rate cut later in the month. Interest rates dropped sharply on the greater likelihood of a recession.
For the week, US stocks dropped by 0.38% and international markets were down by 0.66%. Bonds had a big rally due to the lower interest rates, up by 0.80%.
The Institute for Supply Management Purchasing Managers Index for manufacturing came in at a bleak level of 47.8 for September, down from 49.1 in August. It was the lowest level since June of 2009. The trade war has been a drag on the PMI. “Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019,” said Timothy Fiore, chair of the Institute for Supply Management.
A reading of less than 50 is considered contractionary. For the most part, past recessions have been preceded by a falling PMI that is less than 50, but there have also been false signals, including December of 2015 when the PMI hit 48 and August of 2016 when it hit 49.4.
Manufacturing only represents 8.5% of total employment and 11% of GDP. But a slow-down in the manufacturing sector can find a way to seep into the overall US economy. There was a sign that is happening as the non-manufacturing PMI fell sharply to 52.6 from 56.1.
The decent jobs report shows that the economy is still hanging in there. The unemployment level fell to 3.5%, the lowest since December of 1969. Nonfarm payrolls increased by 135,000. That was less than the consensus estimate of 150,000, but the previous two months were revised up by 45,000. Wage growth month over month was flat, below expectations, year over years wages are up by 2.9%.
The impeachment process rolled on as the embarrassing political situation remains a complete mess and the chances, while still very early, seem to be increasing that the winner in 2020 will represent the extremes of their respective parties (Trump or Warren). Neither choice is encouraging.