Typically, we look at the monthly jobs report as the most important benchmark of where the economy is headed. This week, the Labor Department reports on the employment numbers for September. Unfortunately for Americans and potentially for the global economy, dysfunctional Washington, D.C., has managed to steal center stage once again. Between the budget stalemate and impending default as soon as Oct. 17, the economic data play second fiddle to political brinksmanship.
Markets: What, we worry?
Recently, the financial markets have treated the latest fiscal fumble as if it will all be better in the coming weeks. It's as if investors are saying, "These folks can't be so inept as to allow the worst-case scenario, such as an unprecedented U.S. default, to actually occur." But because the situation is fluid, we don't have much choice but to look at what we do know at the moment about the economy. Brad Sorsensen, director of market and sector analysis at Charles Schwab, says, "We think that this will be another round of hand-wringing and posturing, but in the end, they will get the deal done before any real long-term consequences are undertaken." Sorensen advises investors try to "look out three to five years" instead.
For what it's worth, the economic reports due this week include:
- The Institute for Supply Management manufacturing index for September: Tuesday at 10 a.m. (all times Eastern)
- Auto manufacturers' sales reports for September: during the day Tuesday
- The Commerce Department's report August factory order: Thursday at 10 a.m.
- Labor Department's report on September employment: Friday at 8:30 a.m.
The job market marches in place
Employment figures covering recent months have been lackluster. The most recent reading showed that the unemployment rate declined to 7.3 percent as Americans gave up looking for work. Payrolls growth was subpar. Economist Ken Mayland, with ClearView Economics, sees reason for hope in the coming months in part because of rising global demand, which should help U.S. manufacturers do better.
Mayland says, "We have had some disappointment in the payroll numbers over the past couple of months. The 169,000 increase for August was on the low side of expectations. The previous two months were revised down. But hopefully that was just kind of a summer doldrums and maybe the stage will be set for a little bit better news in upcoming months."
Better times ahead?
Economist Phillip Swagel sees a modest acceleration ahead as well. Swagel, professor at the University of Maryland School of Public Policy, says some of the negatives should begin to have a diminishing impact, such as the payroll tax hike and mandatory federal budget cuts. He says, "The economy has weathered a bunch of shocks, and those are going to fall off. The economy will adjust to those and set the stage for the prospect of stronger growth in the future." Swagel says the growth will be restrained, however. "I don't think we will see a 4 percent or 3.5 percent growth, but 2.5 (percent) to 3 (percent) seems like a reasonable scenario."
Back at Schwab, Sorensen also sees blue skies beyond the political clouds. In fact, he believes that firms will be parting with more of their cash. Says Sorensen, "The replacement cycle is extended at this point, so companies are going to have to replace some of their manufacturing equipment, some of their technology and use that cash that they have in order to do so."
Of course, if the current financial logjam in Washington isn't resolved somewhat cleanly, those bets are off.
This week in business history: A man named Boeing
On Oct. 1, 1881, industrialist William Boeing was born in Detroit. But his mark was really made in the Pacific Northwest, where he founded and built the Boeing Company. It is now a business giant best known for commercial jet aircraft. As a business, Boeing took off over the course of two world wars, selling planes to the military. Boeing, the man, died in 1956. But the company continues to thrive as jet travel continues to grow.
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