The lousy labor market statistics will inspire the Fed to cut rates

We never know the cause of a dollar rout for sure, but the timing indicates it was JOLTS that did it yesterday. As noted above, openings rose a tad but hiring was flat to down and the quits rate fell, meaning lack of confidence in new jobs. The Conference Board consumer confidence drop, worse than expected, was no help.

The US government has shut down and we will not get nonfarm payrolls this Friday, but we don’t really need the information. We already have plenty, with ADP private sector data today, poor though it be. As a general rule, as weak data keeps coming in, whatever the source, it can only drive the dollar down until traders get sick of bad data and see an oversold condition.

We assume that lousy labor market statistics will inspire the Fed to cut rates in October and maybe again in December. Well, we’re getting lousy labor market statistics. Here is a cute and useful summary from RenMac:

1.) Builders holding onto too many workers.

2.) Home price deceleration continues.

3.) Consumer confidence declines on job market weakness.

4.) Job openings stagnate as labor demand gradually ebbs.

5.) How shutdowns create distortions in employment data.

6.) Businesses expect tariffs to increase consumer prices .

The US government shutdown is being ignored by markets but there is a limit to how long it can go on without starting to raise the anxiety level to boiling point. Last time it was 34 days (2018, yes, Trump) and the longest ever. One of the outcomes so far is delay in the release of the Epstein files, which first takes the induction of a new Dem and then a week later, a vote in the House. Some imagine Trump likes the shutdown for that reason alone.

Today we get the private sector job market from ADP, manufacturing PMI’s from both S&P and ISM, construction spending, auto sales and another Fed Gov speech (Richmond’s Barkin). It should be a quiet day. But note that the government shut down does not shut down Trump’s mouth. He is easily bored and may need to scratch another tariff itch. 

Forecast

A sub-par ADP reading will only encourage those who see two rate cuts by year-end, and that’s another hit to the dollar. The longer the government shutdown lasts, the more anxiety rises. We already see it in VIX and the price of gold. The euro is not benefitting as much as one would expect but it has its own tough row to hoe, including being (apparently) alone in the Ukraine war.  

Fun Tidbit: The guy Trump picked to replace the head of the Bureau of Labor Statistic had his nomination pulled after the press (CNN., NBC, others) found out he had a “now deleted social media account that included sexually degrading comments about Kamala Harris, conspiracy theories and derogatory comments aimed toward Trump critics, Democratic lawmakers and the LGBTQ community. The comments were posted from approximately 2017 through 2020.” He was also a bystander at the Capitol on Jan 6. (Bloomberg)

The candidate for the head of the CFTC was also pulled but we don’t yet have any juicy details. He’s a crypto fan.

Separately, Reuters reports “More than 150,000 federal employees will leave the U.S. government payroll this week after accepting buyouts - the largest single-year exodus of civil servants in nearly 80 years, triggering what unions and governance experts warn is a damaging loss of institutional expertise.” They took the Trump buyouts that lasted until yesterday.

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