US Outlook Report: What’s In Store for September Payrolls
Firm readings on the economy bode well for September payrolls. Not only did we get a huge final upward revision to second-quarter GDP to 4.6 percent, the U.S. economy appears to be holding on to much of its momentum in the third quarter.
A stronger than expected retail sales report for August and an upward revision to July sales, along with strength in non-defense capital goods orders, excluding aircraft, has led us to push up our estimate this week for third-quarter real GDP growth up to 3.4 percent. Business spending looks particularly impressive this quarter.
If realized, it shows the U.S. economy came roaring back over the summer. The summer of 2014 (Q2 and Q3 taken together) was a season of sizzle. Real GDP growth likely averaged around 4.0 percent annualized, comparable to the second half of 2013 and about twice the pace of growth the U.S. economy has managed over the last six years.
The evidence continues to pile up that businesses have stepped up their pace of investment. Our analysis shows there is a strong correlation between business investment spending and hiring. The year-on-year growth rates have a 0.82 positive correlation.
We are forecasting a net 230K non-farm jobs were created in September, enough to push the unemployment rate down to 6.0 percent from 6.1 percent- the best monthly job gain since June.
What are we looking for in this next jobs report? We need to see more evidence of improvement in hourly and weekly earnings growth. Improvement here would help put real consumer spending on a faster growth path, and perhaps reassure Yellen and others that the economic progress we saw this summer is sustainable in the face of normalizing interest rates.
We like what we are seeing from the U.S. economy. However, our list of downside risks remains quite long despite the healthy near-term performance. Housing market data is mixed and seems quite sensitive to higher interest rates. The global economy, particularly Europe and China, appears to be weakening. At the same time the US dollar is appreciating rapidly, which could add to deflationary pressures and weigh on U.S. export growth. These are challenges that have the potential to lead to another round of economic disappointment in 2015.
To find out more, check this week’s US Outlook Report.
Tags: economy