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The economy is what businesses do, not what they say: Morning Brief

Myles Udland
Markets Reporter

Monday, October 7, 2019

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You want a job? You got a job.

American businesses are talking one way and acting another.

That is, at least, what the past week's round of economic data told us about the economy.

And it should reassure those who thought survey data last week indicated that a U.S. recession is right around the corner.

The September jobs report published Friday showed that the pace of hiring in the economy has slowed, but still remains solid. The unemployment rate is now at a 50-year low of 3.5%. And the pace of hiring is still above what most economists believe is needed to sustain the expansion.

Earlier this week, however, survey data from businesses in the manufacturing and services sector showed the economy is in its weakest state in at least three years. By some measures things haven't been this tough since the crisis.

And while survey data is not to be ignored — and was closely-watched by skittish investors this week — the economy is ultimately driven by what companies do, not what they say.

In September, that meant continuing to hire.

Rick Rieder at BlackRock wrote Friday that the September jobs report, "represents actual data of what companies and human resources departments are doing and provides some tangible clarity on what has been an ambiguous set of signals on where the economy is headed."

"Overall," Rieder adds, "this payroll data highlights the fact that labor markets are still looking okay, despite some recent evidence of slowing in the vital services sectors."

Survey data from IHS Markit, for instance, indicated that headcount at responding firms dropped in September for the first time since 2010. IHS economist Chris Williamson said this pointed to payroll growth trending below 100,000.

And indeed, the number of jobs created September did slow from August — to 136,000 from 168,000. Though as Michael Feroli, an economist with JP Morgan wrote Friday, this number is "better than feared after this week’s business surveys." In Feroli's view, the labor market right now is in a "controlled descent," as the pace of hiring is "downshifting but not collapsing."

But a decline in the pace of hiring hasn't yet appeared to dent the confidence of workers.

The percent of unemployed workers who voluntarily left their job is just below the highest level we've seen in two decades, a sign of worker confidence in the labor market. (Source: FRED)

Jim Paulsen, chief investment strategist at The Leuthold Group, noted that in September job leavers as a portion of the unemployed pool jumped to 14.6% from 12.9% in August. It’s a level of job leaving exceeded just twice in the last two decades: in June 2019 and April 2000.

"This is a huge show of ‘confidence’ among job holders suggesting they perceive a labor market which is healthy enough to take the risk of leaving a ‘bird in the hand’ for something better," Paulsen writes. "And, it is an illustration of household confidence which will certainly be noticed by employers and should help boost business confidence as well."

In Paulsen's view, then, business confidence could flow from employer confidence back to their employers, the reverse of what many fear right now which that trepidation from the executive class will feed downstream to labor.

We've highlighted for a number of years through the JOLTS report — which tracks job openings, hires, and quits — that workers have increasingly been willing to leave positions as the number of job openings has exceeded hires in every month since January 2015. And as Federal Reserve Chair Jay Powell has said in various forms during his tenure, everyone who wants a job can usually find one in the current economy.

So, while September's jobs data doesn't come without some blemishes — wage growth slowed to a 14-month low of 2.9% in September — the recessionary signal in this report that some had braced themselves for was missing.

And that’s what U.S. businesses actually had to say about the economy last month.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

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