Another Downbeat Jobs Report – Plus More Downward Revisions

In last Friday’s payroll report, the Labor Department announced that 142,000 payroll jobs were created in August, well below economists’ consensus estimate of 165,000 new jobs. The other big news was that the June total was revised down by a whopping 61,000 jobs (from 179,000 to 118,000) and the July payroll report was revised down by 25,000 jobs (from 114,000 to 89,000).

Amazingly, despite all of these large downward revisions and slower job growth, the unemployment rate declined to 4.2% from 4.3% in July. More importantly, the politically sensitive manufacturing sector lost 24,000 payroll jobs in August.

Overall, this weak payroll report may influence the Federal Open Market Committee (FOMC) to cut key interest rates by 0.5% versus 0.25% next week, since 10-year Treasury yields plunged from a high of 3.92% last Tuesday to a low of 3.65% in the wake of the August payroll report, closing Friday at 3.71%.

On Wednesday, the JOLTS (Job Opening and Labor Turnover Survey) came in much weaker than most economists had expected, and the June JOLTs report was also revised lower. Treasury yields fell in the wake of this JOLTS report, so the pressure on the Fed to cut rates by 0.5% is rising, but since the Fed does not like to appear to be in a “panic” mode, a 0.25% interest rate cut is still more likely.

On Thursday, the generally more reliable ADP jobs report came out, saying that 99,000 private payroll jobs were created in August – far fewer than the economists’ consensus estimate of 145,000 – and the smallest monthly private job creation since early 2021. Also, ADP revised its July private payroll report to 111,000, from the 122,000 first reported. Also, ADP said the manufacturing sector lost 8,000 jobs.

In other economic releases, the Institute of Supply Management (ISM) announced last Tuesday that its manufacturing index rose to 47.2 in August, up from 46.8 in July. Only five of the 17 manufacturing industries surveyed reported growth in August. Since any reading below 50 signals a contraction, the manufacturing index has been contracting for 22 months. Overall, this manufacturing report was horrible.

On Thursday, ISM reported that its non-manufacturing (services) index rose slightly to 51.5 in August, up from 51.4 in July. Since any reading over 50 signals an expansion, this represents the 48^th positive month (above 50) in the past 51 months, so the service sector continues to account for virtually all of U.S. economic growth.

The Backlog of Orders component plunged to 43.7 in August, down from 50.6 in July, which is a concern for upcoming ISM service sector reports. Only ten of the 17 service industries that ISM surveyed reported an expansion in August, so the service sector is not hitting on all cylinders.

On Wednesday, the Commerce Department announced that the trade deficit in July surged 7.9% to $78.8 billion. Imports surged 2.1% while exports grew only 0.5%. This created the highest trade deficit since March 2022. Lower crop prices and moderating energy prices caused export growth to slow.

Also on Wednesday, the Fed’s Beige Book (12-district survey) was released, revealing that nine of the 12 Fed districts reported flat or declining economic activity in August. Also, manufacturing activity dropped in most districts. Most districts also reported softer home sales. Residential construction was also mixed, due to softer home prices. In short, the Fed has all the evidence it needs to start cutting key interest rates.

Tonight, the Presidential Candidates Will Promise “Anything and Everything to Everyone”

Last week began with a surprising series of political policy reversals. Kamala Harris abruptly lowered her proposed top long-term capital gain tax rate to 28%, down from the record-high 44.6% she had previously proposed. Usually, when you run for President, your proposed tax policy is set in stone, so the fact that she is changing her proposed capital gain rate may be a sign of desperation and a direct result of polling in key swing states.

I for one will be relieved when tonight’s Presidential debate is over, since Wall Street needs to hear some clarity and consistency – and hopefully one candidate will break out after the debate.

Our Presidential candidates are both now promising everything and anything to everybody, plus changing their stances on abortion, fracking, the border wall, immigration and other important issues, depending on which way the wind blows in which swing state.

There is still a big difference in their tax policy, since Donald Trump wants to cut taxes, while Kamala Harris wants to hike Medicare taxes, plus more than double taxes on investment income for affluent households. Naturally, since Congress controls spending bills, neither candidate will be able to deliver on everything they promise, but voters don’t know that.

Donald Trump is promising (1) no taxes on tips, (2) no taxes on Social Security benefits, (3) an end to seemingly endless wars and (4) a return to prosperity. Kamala Harris is also promising (1) no taxes on tips, (2) a $6,000 child tax credit, (3) no new taxes on households earning under $400,000 per year, (4) a rise in top capital gains taxes to 28% (down from 44.6% previously proposed), (5) raising Medicare taxes from 3.9% to 5% and (6) a 25% minimum tax on billionaires, including on unrealized capital gains.

Harris also wants the federal government to provide access to abortion, build a border wall and raise $5 trillion in new taxes over the next 10 years, which is not a big vote-getter, but the candidate that shows the most confidence and is the most believable in tonight’s debate is expected to become the next President.

These flip-flops recently have been amazing, since tonight we get to see a reboot of pro-fracking Kamala, despite her previous anti-fracking, anti-offshore drilling stance. Last January, the Biden Administration banned fracking on federal land, plus any LNG expansion.

Although 16 states sued to overturn the LNG expansion ban and recently the fifth circuit federal appeals court ruled in favor of these 16 states to overturn this ban, Western Pennsylvania remains furious over the fracking and LNG ban, so Pennsylvania may be a hard state for Kamala to win despite her surprising reversal on fracking – to woo Pennsylvania.

It will help Harris that crude oil prices are expected to decline over the next two months as seasonal demand wanes in the fall, despite the fact that Libya is offline, Venezuela cannot keep the power on, and Ukraine continues to obliterate numerous Russian crude oil refineries.

Naturally, the Middle East remains a tinderbox after the Houthis sunk an oil tanker and Hamas killed six hostages, including one American. Between record crude oil production in America, plus Guyana ramping up its production with the help of Exxon Mobil (XOM), crude oil prices are expected to meander lower in the upcoming months as demand ebbs.

Recently, the Harris campaign has moved into Georgia and North Carolina, since she may need to seek a new path to winning 270 electoral college votes. The bottom line is that no matter what the polls say, the electoral college may be very tight for either Donald Trump or Kamala Harris. I still expect that whoever wins Pennsylvania will become the next President, and tonight’s debate just might reveal a clear winner.

The newest dilemma is that younger people are still struggling with high housing and rental costs, as they wonder if they can live as prosperous a life as their parents are living. Regardless of who wins, the U.S. is expected to prosper, since we are food and energy independent.

Furthermore, our states naturally compete with each other, which helps prosperity grow. The most important thing is that no matter who wins, the Fed will cut interest rates well into 2025, providing a “turbo boost” to the U.S. economy. Then, whoever wins will likely run up huge budget deficits, so the next Treasury Secretary will face daunting challenges.

America is an optimistic, idealistic society. I expect tonight’s debate winner will be the one who exudes the most confidence, sincerity and is believable to most Americans. Our stock market and our homes are what help make most families grow richer, and growth in these areas in turn will fuel more optimism.

America tends to like a cheerleader as President, someone who will promote the American dream.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Disclaimer: Please click here for important disclosures located in the “About” section of the Navellier & Associates profile that accompany this article.

Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.

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