Friday’s payrolls report was exactly what those of us who are bullish on the US economy were looking for; a continuation of the good news. There is a lesson to be learnt here from the world of magic.
When viewing a magic trick it is always a good idea to keep half an eye away from the action. As much as the glamorous assistant, fireworks, dazzling lights and hand motions are pulling your view one way, the real action is taking place elsewhere. It is the action that is not seen as a headline that actually gives us the end result. We will know that the magic trick of a recovered economy is complete when it no longer is viewed as news.
As we summarised in this morning’s note, 214,000 jobs added against a consensus view of 235,000 keep the days of job creation very much ongoing and with both wage levels and the rate of participation falling, the internals were also decent.
What this does from an immediate market impact is maintain the belief that the divergence between the largest three developed economies can very much be maintained. Of course, this does not involve a massive sea change in policy expectations from the Federal Open Markets Committee and we maintain our view that the Fed Funds rate will increase in Q3 2015 for the first time since June 2006.
The real highlight of this shortened week from the US will be Friday’s retail sales figures. October’s non-manufacturing ISM, published last week, continued the falls back from the highs seen in August and we would expect a similar drag to occur on Friday’s figure.
The propensity for consumers to save money between the end of the summer with back-to-school rush and the run into Christmas typically leaves October as a strange month for retailing. As we have stated before however, the falls in energy prices have an obvious effect on disposable income levels and with the oil price continuing lower there will have been more cash in back pockets. We are looking for a 0.1% increase on the month.
The quiet nature of this week is likely to continue into December, I believe. With no FOMC meeting this month, arguably the most important economic release already done with and Thanksgiving just over the hill, we can see markets taking their foot off the gas this week. Obviously there are speeches from Fed officials including Fed presidents Charles Plosser (Philadelphia), Narayana Kocherlakota (Minneapolis) and James Bullard (St. Louis). As with all speeches we will be looking for hints around job creation, market volatility and growth fears for any new indication of when interest rates will finally lift higher.