KEY DATA: ISM (NonMan.): +0.9 points; Orders: +4.7 points; Employment: +3.9 points/ ETI: +2.8%/ HWOL: +1.7%
IN A NUTSHELL: “Another set of reports; more signs of continued recovery.”
WHAT IT MEANS: The good numbers just keep coming. Today, the Institute for Supply Management reported that activity in the service and construction portions of the economy continued to improve in September. Sixteen of the seventeen industries indicated they expanded. Only Professional, Technical and Scientific Services was down. It is hard to explain why that one group didn’t follow the crowd, but it is rare to see any survey that everyone is on the same page. Indeed, less than eight percent of the respondents said activity slowed over the month, making it clear that the expansion is quite broad based. The details of the report were quite solid as orders rose sharply and employment moved from contracting to growing. The one warning sign was that order books have pretty much stop fattening despite the solid increase in demand.
The Conference Board released two labor market related measures today and both pointed to further gains for workers, though not as massive as they had been. The Employment Trends Index, rose again in September as all eight of its components were up. Clearly, the improvement in the employment situation is pretty much across the economy as we saw last Friday in the jobs report. That was the good news. The less good news was that the index is about half of what it was in February, showing how far we still have to go to get back to where we were.
The second Conference Board release was its August Help Wanted OnLine Index, which posted a somewhat modest gain. But don’t get fooled by the less than spectacular rise. The measure is only about four percent below its high. Firms are looking for workers like crazy, even with the unemployment rate near eight percent. Job gains may continue to decelerate, but compared to normal times, they should still be strong for the remainder of the year.
IMPLICATIONS:The labor market has done a lot better than expected since the economy has reopened. Nevertheless, total nonfarm payrolls are still 10.7 million below the peak in February. It could take another three years or more to get back to that level, assuming a moderately effective vaccine is approved and is widely available and accepted sometime during the first half of next year. The economy is not going to fully reopen and indeed remains at risk, until the vaccinations are widespread. Keep in mind, just because a vaccine is approved, that doesn’t mean large numbers of people will get the shot or shots immediately. The CDC shot itself in the arm (pun intended) by giving the impression, accurate or not, that it was susceptible to political pressure. That is likely to slow the acceptance of the vaccine and increase the time needed to get most of the population immunized. Until that happens, the final stage of the reopening will take a long time and as we have seen from recent events, hot spots are likely to appear anywhere if not everywhere without the vaccine. That implies job growth will slow as the easy part of the reopening is largely done. Now comes the hard part: Finishing the reopening, weaning ourselves off government welfare and cleaning up the mess created as firms that have been hanging on give up. And I don’t even want to think about what the election will bring.