All posts by joel

October Income and Spending, Durable Goods Orders, New Home Sales and Jobless Claims

KEY DATA: Consumption: 0%; Income: +0.4%/ Durables: +3%; Excluding Aircraft: 0%; Capital Spending: +1.3%; New Homes: +10.7%/ Jobless Claims: -12,000

IN A NUTSHELL: “The economy is hardly a turkey so the Fed, which is fed up with low rates, will likely tighten the economy’s belt a little next month.”

WHAT IT MEANS: The day before Thanksgiving is when everyone dumps their data so they can get out early and today was no exception. Most of the reports were decent. Let’s start with the consumer. Households’ balance sheets are better as income is rising solidly. Most encouraging was a sharp increase in wages and salaries. The tight labor market, which got even tighter in October as claims were about as low as they get, is finally causing firms to raise compensation more rapidly. However, people aren’t out shopping until they drop or even until they are tired. They are spending money, but not at a great pace. The weakest segment of was durable goods demand, which is really nothing to worry about. October vehicle sales were one of the highest on record so we know consumers are more than willing to buy big-ticket items. Indeed, the added burden of monthly vehicle loan payments may be a reason that retail sales have not taken off despite the rise in incomes. But households are not stretched as the savings rate continues to edge up. We are approaching the 1990s savings rate. On the inflation side, prices rose modestly and when food and energy were excluded, they were flat.

Manufacturing has been a soft spot in the economy, but that may be changing at least a little. Durable goods orders rose sharply, but most of that was for civilian and defense aircraft. Still, orders for computers, communications equipment and machinery were up. Again, there was one very positive component of the report: Business capital goods orders rose strongly and it looks like the cut backs in investment may have ended.

New home sales surged in October – not really. There was a sharp rise in signed contracts but that was only because the September number was revised down. The October level was okay but not particularly great. This report, though, was weird. Demand in the Northeast jumped by 135% but fell slightly in the West. But the strangest number was medium prices: They fell, yes fell, by 6% from the October 2014 level. That makes no sense at all.

MARKETS AND FED POLICY IMPLICATIONS: Today’s data did nothing but provide the Fed with more cover to raise rates in December. The only potential speed left is the November jobs report, which will be released on Friday, December 4th.   But that number would have to be almost catastrophic – i.e., negative – for the Fed to get worried. The markets are expecting a rate hike so a move shouldn’t cause that great a reaction. With growth exceeding potential, with wages rising more solidly and with businesses starting to invest again, there is lot for the economy to be thankful for. So, on that note let me say:

Have a wonderful Thanksgiving!

Revised 3rd Quarter GDP, Housing Prices, Consumer Confidence and Philadelphia Fed NonManufacturing Index

KEY DATA: GDP: 2.1% (up from 1.5%)/ S&P Home Prices (Year-over-Year): 4.9%/ Confidence: -8.7 points/ Philadelphia Fed: up 8.8 points

IN A NUTSHELL: “The economy is growing at its potential and home prices are accelerating, so why all the long faces?”

WHAT IT MEANS: With terror being on everyone’s minds, it is hard to focus strictly on the economic data, but we must do that so we know where things are given the risks the world is facing. And the data look fine. It turns out that the economy grew at a solid pace in the summer. I use the term “solid” because we have to base out evaluation of growth on what the economy can do, not what we would like it to do. Trend or potential economic growth is running between 2% and 2.25%, so the upwardly revised GDP number comes in right at that pace. It is strong enough to keep the labor market tightening and to maintain modest upward pressure on prices. The revision was mostly due to more inventory building than initially thought. Equipment and residential spending were also revised upward, while consumption came in a touch lower. It looks like growth this year growth will come in at about 2.5%, above trend but not strong enough to create major bubbles. That said, wage pressures are building.

On the housing front, prices continue to rise. Both the S&P/Case Shiller and CoreLogic indices rose faster over-the-year in September than they did in August. S&P/Case Shiller had prices rise by 4.9% for its national index while CoreLogic came in at 6.4%.

The Conference Board’s Consumer Confidence Index fell sharply in November. There is growing concern about the labor market as more people thought jobs were hard to get and fewer found it easier to get a job. How much the terror news affected the results is unclear.

The Philadelphia Fed reported that the regional economy picked up some steam in November. But the same time, nonmanufacturing firms reported that their business grew a little less rapidly. There were some very interesting results in this report. Compensation rose faster and firms seem to be reacting by slowing hiring. Looking toward 2016, firms expect prices and compensation to increase by about 3% over-the-year, which is above what most people have been predicting. Rising labor costs and pricing power may be returning to the economy.    

MARKETS AND FED POLICY IMPLICATIONS: There are growing calls for the Fed to once again put on hold its first rate hike because of the uncertainty created by the Paris terror attacks. But while that is a logical reaction, history tells us that major negative events don’t usually cause the economy to falter. Despite the horrors of September 11th, fourth quarter 2001 growth was positive and the recession ended in November. That is not to say there will not be any short-term or even longer-term dislocations. Because of the need for heightened spending on security, the economies of just about every nation look different today than they would have had there been no terror attacks. The current attacks will only add to increased security spending. And while consumers tend to become more conservative initially, they usually bounce back fairly quickly. We may have to mark down fourth quarter growth a little, but that could mean a somewhat stronger first quarter 2016 expansion. Barring a domestic terror attack, I still expect the Fed to raise rates in December.

October Existing Home Sales

KEY DATA: Sales: -3.4%; 1-Family: -3.7%; Condos: -1.6%; Prices (Year-over-Year): +5.8%; Inventories: -2.3%

IN A NUTSHELL: “Home sales have been bouncing around and one of the reasons may be the lack of homes on the market.”

WHAT IT MEANS: The existing housing market is a key segment of the economy in no small part because a purchase usually triggers additional purchases of a variety of residence-related goods. To get back to strong economic growth, housing demand needs to be solid. Existing home sales have been rising this year, but in fits and starts. After hitting the highest pace in eight years in July, the level has flattened out. Still, we are looking at a 2015 sales pace that should be the highest since 2006. The National Association of Realtors reported that demand declined in October. There was a sharp reduction in sales in the West, a more modest one in the South and very little or none in the Midwest and Northeast. Purchases of single-family units fell more rapidly than condos. As for prices, they continue to rise solidly in most regions except for the Northeast. The price data are not seasonally adjusted so you have to compare to the same month in previous years. Doing that, the October price level was the second highest October on record, exceeded only in October 2005, the peak in housing prices during the bubble. That pretty much indicates that at least on the price side, conditions are normalizing. One issue, though, continues to overhang the market. The supply of homes on the market is relatively low. That lack of choice may be keeping sales down

MARKETS AND FED POLICY IMPLICATIONS: The housing market is in decent shape but could be a lot better is people decided they were ready to move and listed their homes. But the real issue for housing is what will happen when rates start to rise. It looks like December is when the Fed will start increasing rates and variable mortgage rates should follow. Assuming the markets believe the FOMC that inflation will trend back to 2% in the medium term, longer-term rates could rise as well. As I have argued previously, I think that at least initially, sales should rise. Buyers will have to start factoring into their purchase calculus the simple fact that mortgage costs could be increasing. That should cause some to make decisions that they were able to put off when rates were stable. Realtors have reported that there are lots of “lookers” and fewer “buyers”. That should change when mortgage rates start rising. But one of the long-term costs of the extended low rate environment is that many homeowners have refinanced into very low mortgage rates. Are they going to be willing to move and trade those low rate mortgages for higher rate mortgages? To the extent that low inventories are a problem for the market and that the churn needs to return before sales reach trend levels, the extensive amount of refinancing into historically low mortgage rates may slow the market’s return to normal.

October Housing Starts

KEY DATA: Starts: -11%; 1-Family: -2.4%; Multi-Family: -25.1%/ Permits: +4.1%; 1-Family: +2.4%; Multi-Family: +6.8%

IN A NUTSHELL: “Home construction has been up, down and all over the place this year, but the trend is still upward, at least slowly.”

WHAT IT MEANS: The curse of this expansion is that the moderate pace has meant the economic data bounce around like crazy. That has been the case with the construction data and we saw that once again with the latest housing starts numbers. And once again, the headline number hid what was happening. On the surface, it appears that builders slowed their pace of construction in October, but let’s go to the details. Single-family construction eased only modestly. The big decline was in multi-family activity and if there is one thing we know, that component is the epitome of volatility. Indeed, the huge October drop came after a robust 18% rise in October. Over the past year, multi-family starts have ranged from a low of 300,000 units annualized in February to a high of 524,000 units in June – and these are seasonally adjusted numbers! So, let’s not take too much from the October decline in starts. Will construction pick up? The October permit requests were about 8.5% above the starts number and for the past three months, permits have been running a little ahead of the building pace, so don’t be surprised if housing activity rebounds solidly in November. And if the strong rise in the Mortgage Bankers Association’s mortgage applications numbers are any indicator of demand, that should happen. Purchase mortgage applications are running about 15% above last year’s levels. Builders should see their fair share of that new demand.

MARKETS AND FED POLICY IMPLICATIONS: Housing is a key sector in the economy and housing sales and starts are still improving. They may not be where most of us would like to see them, but there are factors at work that may be constraining home demand. Housing formation is a major factor in sales and that has been lagging. Younger workers are burdened by high school loan payments. Boomers are bailing out of their homes and may not be looking for new product. Simply imposing past trends on current patterns without making adjustments for changing conditions may not shed a whole lot of light on the state of the housing market. While housing sales and starts may be below desired levels, they may not be that bad if the demographic trends are factored in. That is similar to the situation with the labor force participation rate. Failing to recognize that changing demographics are affecting the labor supply allows people to complain about the decline in the participation rate. But it could be that given the demographic trends and the changing structure of the job market, the decline may not be far from what would have been expected. And that goes for economic growth as well. We would all love to see 4% or even 5% growth. However, trend growth has fallen to less than 2.5%, so those robust growth rates are not likely to be seen. The Fed members understand this and that is why they are likely to believe the economy is currently strong enough to absorb a rate hike fairly easily.

October Consumer Prices, Real Earnings, Industrial Production and November Home Builders’ Index

KEY DATA: CPI: +0.2%; Excluding Food and Energy: +0.2%/ Real Earnings: +0.2%/ IP: -0.2%; Manufacturing: +0.4%/ NAHB: -3 points

IN A NUTSHELL: “With consumer prices stabilizing and manufacturing rebounding, the barriers to a Fed tightening continue to come down.”

WHAT IT MEANS: Inflation is coming back, at least a little. The Consumer Price Index rose moderately in October and that was the case in almost any way you sliced and diced the data. For the first time in a while, there were significantly more categories posting gains than declines. Even gasoline prices were up, which was a surprise since the Energy Information Agency had costs declining. Food costs edged upward, but the real gains were found in shelter and medical care. People buying vehicles got a break on prices. Look for more vacation car trips as airfares soared. The strong dollar probably helped drive down apparel costs, but it doesn’t look as if the falling import prices are being passed on greatly to consumers. Importantly, services prices continue to rise at a moderate pace and as I have mentioned so many times before, this is over 60% of costs. Over-the-year, services prices are up 2.4% and excluding energy services, the rise in now at 2.8%. So much for no inflation.

Inflation-adjusted wages rose moderately in October. Importantly, average hourly wage gains are accelerating, a sign that the tight labor market is starting to force firms to raise wages.  

Manufacturing has been weak lately but that seems to be changing. Cut backs in energy production and a warm October that limited utility output may have caused overall industrial to decline, but there was a solid rise in manufacturing production, especially durable goods. Output of consumer goods, business equipment and industrial supplies all improved.

The National Association of Home Builders/Wells Fargo builder sentiment index declined, though it remains at a level consistent with moderate activity. Builders seem worried that potentially higher mortgage rates will slow sales, though the opposite could happen.

MARKETS AND FED POLICY IMPLICATIONS: Tomorrow, the “minutes” from the October FOMC meeting are released. Low inflation and what was perceived to be at the time slowing job gains were likely key factors in the decision to do nothing. Well, the recent data are now on the side of a Fed rate hike in December. Inflation is not decelerating and there could be a real shocker come early next year as the huge declines in energy prices disappear: It is possible that the year increase could be above 1.5% in January, not the 0.2% rise in October. With the core at 1.9%, the Fed’s inflation target is really not that far away. In addition, we have seen that job gains are back on track, wage gains are accelerating and manufacturing is starting to recover. In other words, everything seems to be coming together for those at the Fed who want to start normalizing rates. Investors really need to come to grips with the likelihood that interest rates are going up and the first rise could come in four weeks.

September Consumer Prices, Real Earnings and Weekly Jobless Claims

KEY DATA: CPI: -0.2%; Excluding Energy: +0.2%; Gasoline: -9%; Real Earnings: +0.1%/ Claims: 255,000 (down 7,000)

IN A NUTSHELL: “Outside of energy, inflation is already at more normal levels.”

WHAT IT MEANS: Since inflation has generally been the Fed’s major worry, the September Consumer Price Index should provide some clues to the direction of consumer prices. Household costs fell in September, led by another sharp decline in gasoline prices. Excluding energy, price rose moderately. Indeed, over the year, consumer prices are up 1.9% when just energy is excluded from the index. That is not to say gasoline and fuel oil don’t count: They most definitely do. But it is not very likely that energy commodity prices will fall over the next year by the 30% they dropped in the past year. As for the details of the report, they were mixed. Food prices are bouncing back. Critically, cake and cupcake prices jumped. I was devastated. After solid increases in August, apparel and medical care expenses declined. We are still seeing a drop in used car costs, the result of so many vehicles being traded in for new ones. And finally, the services segment of consumer costs continues to accelerate. Few may focus on this grouping, but it does constitute over 60% of the index. Over the year, non-energy related services costs are up 2.7%, which is hardly tame. Shelter is leading the way, which shouldn’t surprise anyone trying to rent an apartment.

The declining consumer prices helped keep household spending power from falling in September. Real hourly earnings rose slowly as the modest decline in wages – which was odd -was more than offset by the drop in prices.

Unemployment claims fell to the lowest level since November 1973. Adjusting for the labor force size, we are at historic lows. Clearly, the labor market is continuing to tighten.

MARKETS AND FED POLICY IMPLICATIONS: One of my favorite phrases is: “The answer to all economic questions is: It Depends!” That is so true when it comes to the question: Is inflation too low? It depends upon which index you use. If you use the top line CPI number, it appears that consumer costs are going nowhere. But the huge fall in energy costs, which is the prime factor in the low inflation rate, is not likely to be repeated. Excluding that wildly volatile commodity, low inflation is not an issue, unless you expect similar massive declines in oil prices going forward. If, over the next year, energy prices are flat and we get the exact same changes in all other categories, next September’s inflation rate would be 1.9%. That is why many are saying that the Fed’s inflation target could be reached next year.   Indeed, the tight labor markets are already driving up wages. Over the year, real hourly wages rose by 2.2% in September. In September 2014, the yearly gain was only 0.4%. With the unemployment rate likely to fall below 5% soon, wages will be rising a lot faster next year. Will rising wages trigger higher inflation? That is really the issue the Fed is struggling with and how the members answer that question will determine when they start to increase rates.

September Retail Sales and Producer Prices

KEY DATA: Sales: 0.1%; Excluding Vehicles: -0.3%/ PPI; -0.5%; Goods: -1.2%; Energy: -5.9%; Excluding Food and Energy: 0%; Services: -0.4%

IN A NUTSHELL: “Consumers have become more cautious, though lower prices are helping keep their total spending down.”

WHAT IT MEANS: Is the economy growing strongly or softly? The answer, if you believe the data, is yes. On the surface, the September retail sales report looks pretty disappointing. But the details don’t necessarily indicate that. Households bought lots of big-ticket items such as vehicles and furniture, but didn’t hit the appliance or electronics store at all. Sales of clothing and sporting goods surged but spending at gas stations, supermarkets and home stores was off. We didn’t buy online but boy do we like to eat out. So what do we make of this? First, it is good to see that there is enough confidence so buy expensive products. Also, these data are not adjusted for prices, so the fall in gasoline sales and at supermarkets may be more a function of declining costs rather than unit sales. Indeed, the average price of gasoline fell nearly 10% in September but sales of gasoline were down only 3.2%. It looks like we were enjoying driving again and at a lower cost! I suspect the inflation-adjusted numbers will look much better than the unadjusted ones.

On the inflation front, the ability to buy more but still pay less for some products looks like it is not going away soon. Wholesale prices fell sharply, helped by another huge decline in energy costs. For the eighth time in eleven months, food prices declined. If you drive and eat, you are doing pretty well. In addition, services costs, which had been rising moderately, took a turn downward. And if you look at the special indices, which break out wholesale prices by just about every combination possible, it was almost impossible to find one that had a positive sign. Even my beloved bakery product prices are going nowhere. There are also no price pressures in the pipeline, as intermediate and crude costs were down. About the only place there is any inflation is in finished consumer goods less food and energy. This index rose moderately in September and over the year, it was up 2.6%.

MARKETS AND FED POLICY IMPLICATIONS: The economy is still in good shape but it is hard to make the case that it is booming. Can it absorb some rate hikes? Undoubtedly. Retail sales are still solid enough that consumer spending will be strong in the third quarter. But it is inflation that is the real issue. The “sturm und drang” at the Fed over China notwithstanding, it is the uncertain course of inflation that could keep the FOMC from hiking rates this year. Unfortunately, the gang that cannot communicate straight is still sending out as many unclear signals as possible, so we will simply have to wait until the statement is released on December 16th to really know if rates are going up. It is highly unlikely anything will be done at the October 27-28 FOMC meeting. As for the markets, today’s numbers will likely be viewed as showing economic weakness, though I don’t’ think that is entirely accurate. Is that good or bad for equity prices? Got me, though the recent theory is that what is good for the economy is bad for stocks. Crazy, I know. But the soft inflation data should keep interest rates down.

September Import and Export Prices

KEY DATA: Imports: -0.1%; Nonfuel: -0.3%; Exports: -0.7%; Farm: -1.1%

IN A NUTSHELL: “The disinflationary impacts from falling import prices is easing, but it has not gone away.”

WHAT IT MEANS: The Fed can live with the current state of the domestic economy, even if it continues to be worried about international activity. But what is causing some members to want to wait before raising rates is low inflation. Declining energy and commodity costs, coupled with falling nonfuel import prices, have combined to keep inflation well below the Fed’s 2% target. Today’s import price numbers don’t provide a whole lot of support for the belief that inflation will pick up anytime soon. Import costs fell only modestly In September as energy prices actually rose. That was a change. But excluding petroleum, there are still some decent downward pressures. Indeed, we saw food, nonfuel industrial supplies and capital good prices ease in September. Vehicle costs were flat and the rise in consumer goods prices was minimal. Previous declines in energy costs are still working their way through the system, so price declines are likely for a while, even if energy prices keep rising. On the export side, the problems facing the agricultural sector continue as the prices for farm products overseas just keeps going down. Food export prices have fallen by over 14% during the past year and that has to be eating into the farm belt’s income.

MARKETS AND FED POLICY IMPLICATIONS: It was nice that the import price declines are moderating, but they haven’t turned positive just yet. The strong dollar is making sure that import prices and thus U.S. inflation remain low. Thus, there is little reason to expect that inflation, at least as measured on a year-over-year basis will move up to 2% soon. But stable or even slowly rising energy prices will allow monthly changes to become positive and that could provide some basis for the argument that inflation will reach the Fed’s target in due course. Basically, we don’t know what the Fed will do and when they will do it. Heck, we don’t even know what ‘it’ is. Minneapolis Fed Bank President Kocherlakota said we should be cutting rates, not raising them. I didn’t realize that the current level of rates was restricting borrowing and therefore economic activity. You learn something new each day. Anyway, the Fed will likely do nothing at the October 27-28 meeting so the focus of attention is on the October and November jobs reports that come out before the December 15-16 meeting. They have to be strong if the Fed is to raise rates before the end of the year, as many keep saying is a possibility.

August Trade Deficit and Home Prices

KEY DATA: Deficit: $48.3 billion ($6.5 bil. wider)/ Home Prices (Year-over-Year): 6.9%

IN A NUTSHELL: “The stronger dollar is beginning to bite into exports and the trade deficit is soaring as a result.”

WHAT IT MEANS: When you have the one solid economy in the world and your currency is rising, you start to price your goods out of the market that is precisely what is happening.   U.S. exports fell sharply in August, declining by over 3%. The only category that posted a gain was capital goods, as aircraft shipments surged. Otherwise, we saw declines in sales of food, consumer goods, vehicles and industrial supplies. Oil was down, but that was more a price issue than a demand slowdown. Meanwhile, we bought a lot of goods from the rest of the world. Indeed, demand for almost everything except vehicles and petroleum rose. Looking across the world, it is hard to find a country that bought more of our products. But, lots of countries ramped up their sales to us. Not surprisingly, Chinese exports to the U.S. rose sharply while their purchases of U.S. products continued to decline. This is not a new trend: It has been going on for about a year now. Actually, that is a pattern that has emerged with other major trading partners such as Mexico and Canada.

While the world may be having issues, the U.S. economy, especially the housing market, is not. CoreLogic reported that home prices surged 1.2% in August and were up by nearly 7% over the year. A growing number of metropolitan areas are now considered to be “overvalued”. The strong price increases are lifting a lot of boats from underwater to good condition. That should create increasing numbers of homes on the market and since inventory has been a restraining factor, sales should rise. But as more resales hit the market, housing starts increase and ultimately mortgages rise, the price increases should moderate.

MARKETS AND FED POLICY IMPLICATIONS: The U.S. is the market of last resort and foreign companies are shipping everything they can over here. At the same time, the dollar is creating pain for our exporters. Though trade should restrain third quarter growth, domestic economic conditions are still quite good. When you adjust for prices, exports may be slipping, but they are hardly crashing and burning. Firms are fighting hard to keep their share of the foreign markets. Also, housing remains quite strong. While others bemoan price increases, I keep arguing that people can sell their homes only if they have enough equity to allow them to sell. Nothing helps housing supply more than rising prices, so I am happy to see the increases and see that they are spreading across the nation. As for the markets, isn’t it great that the investors think bad news is good news? Who cares what that really means: All that matters is the Fed may put off raising rates and the liquidity will keep on rolling into the financial markets. Yes, I am being sarcastic. Do these data have any implication for Fed policy? Probably not. Former Fed Chair Ben Bernanke comments this week were taken to imply the Fed is on hold for a long time, or at least until the 2% inflation target is clearly in sight. Mr. Bernanke was a great crisis manager, but clueless about the economy when it was not in trouble. Remember, he claimed the housing bubble was slowly deflating. Enough said.

September Employment Report

KEY DATA: Payrolls: +142,000; Revisions: -59,000; Manufacturing: -9,000; Government: +24,000; Unemployment Rate: 5.1% (unchanged); Participation Rate: -0.2 percentage point; Hourly Earnings: -$0.01

IN A NUTSHELL: “Is the jobs machine running out of gas?”

WHAT IT MEANS: Most economists thought the September jobs report would be pretty decent. Boy, were we wrong. Instead, it was ugly. Not only were the job gains well below expectations, but the previously reported July and August increases were revised downward. In the third quarter, hiring averaged only 167,000 per month. That is the weakest three-month average in 2½ years. And the details were just as disappointing. The problems in the oil patch and slowing exports led to layoffs in the manufacturing and mining sectors. In September, that reduced payrolls by 21,000 after a 40,000 decline in August. Still, the rest of the economy didn’t hire at a breakneck pace. There were decent increases in health care, retail, entertainment, residential construction and restaurants, which are all consumer-related sectors. Professional and business services also were up solidly. But finance, wholesale trade, transportation were weak. That was odd since you would think these sectors would be supporting what looks like solid consumer activity. Public sector payrolls were up sharply and we shouldn’t count on that happening too often. A drop in the workweek, a slowdown in overtime hours and a slight decline in the average wage all added to the impression that September was not a good month for the labor market.

It was nice that the unemployment rate remained at 5.1, but the details were not what you would like to see. The labor force fell sharply and that is hardly a sign of a robust labor market. These numbers are extremely volatile but this drop was large nonetheless. With the labor force down, it was not surprising that the participation rate also fell.

MARKETS AND FED POLICY IMPLICATIONS: Why have businesses reduced hiring activity? This report was a downer even if you add back the job losses caused by the weakness in the oil-patch and exports. But manufacturing and exports don’t make up a huge portion of payrolls. Meanwhile, domestic demand seems to be strong. September vehicle sales will exceed the 18 million units annualized mark for the first time in over a decade. Housing seems solid and the summer tourism season looks to have been strong. Consumers are spending, yet business confidence is sinking. So we have a dichotomy: The U.S. consumer is carrying the load but firms are being cautious in their hiring. Or at least that seems to be the case. Another explanation is that companies are trying to hire but they are not finding workers with the desired skills who are willing to take the pay being offered. In other words, it is not an issue of demand but of supply. Or, maybe, the numbers are just strange. If you believe the oil-patch/export theory, it would be large firms who are doing the cutting. But ADP had large firms doing most of the hiring in September. Also, the National Federal of Independent Businesses survey indicated that small firms are hiring near the pace we saw last year. The Bureau of Labor Statistics may not be doing a good job capturing these hires. I just don’t know, but the strong consumer and soft hiring divergence is a conundrum. And when you get conflicting indicators, the best policy is to simply wait and see, which is what the Fed will likely do. So any chance of a hike in October is gone and unless the next two employment reports released before the December meeting reverse the impression created by the last two, we might not even get a hike in December, regardless of what the Fed Chair has been saying.