Casey Wagner

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It’s bounce-back day on Wall Street after Friday’s jobs report-fueled dip.



After the first three hours of trading Monday morning, the S&amp;P 500 and Nasdaq Composite indexes were up 1.3% and 1.8%, respectively. I’m not shocked to see things back in the green, but I’m curious as to how long the rally may last.&nbsp;



Investors are going to be watching for any additional fallout from the July jobs report. As a reminder, Friday’s release showed the economy added just 73,000 new positions last month (compared with expectations for 104,000).&nbsp;



May and June also received significant downward revisions (a combined -258,000 positions), marking the biggest revision since 2020. The unemployment rate was unchanged at 4.2%.&nbsp;



The numbers were not good for stocks, although the report did help boost expectations of a September interest rate cut from the Fed.&nbsp;



Chair Powell has stressed in the past that he’s primarily concerned with the unemployment rate as opposed to the number of positions added. Last week’s Fed decision (in which it opted to once again hold interest rates steady) came with an addendum we haven’t seen in decades: a double dissent.&nbsp;



JPMorgan chief US economist Michael Feroli called the <a href="https://blockworks.co/news/powell-resolute-amid-rate-dissents">two dissenting opinions</a> in last week’s Fed decision (from Governors Waller and Bowman) a “job application,” and I’d have to agree. With Powell’s term set to <a href="https://blockworks.co/news/fomc-june-powell-term-end">expire next May</a> (and Trump’s <a href="https://blockworks.co/news/trump-criticizes-fed-chair-powell">vocal distaste</a> for Powell), the position is up for grabs.&nbsp;



Here’s an excerpt from Waller’s opinion:&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“While the labor market looks fine on the surface, once we account for expected data revisions, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased. With underlying inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate.”
</blockquote>



From Waller’s mouth to the president’s ears? We’ll have to wait and see.&nbsp;



Aside from Powell, there’s another (former) government official on Trump’s bad side: Bureau of Labor Statistics Commissioner Erika McEntarfer. He fired her on Friday following the release of July’s employment report, accusing her of manipulating the data to show a bias against his administration.&nbsp;



“A lengthy history of inaccuracies and incompetence by Erika McEntarfer, the former Biden-appointed Commissioner of the Bureau of Labor Statistics, has completely eroded public trust in the government agency charged with disseminating key data used by policymakers and businesses to make consequential decisions,” the White House wrote in a Friday statement.&nbsp;



The BLS earlier this year said it would have to reduce its data collection on consumer prices, which impacts its CPI report. Last week the agency clarified that the changes were implemented “to align survey workload with resource levels.”&nbsp;



The situation adds a layer of political complexity to Friday’s disappointing report, and takes a hit to investor confidence in data. Noelle Acheson, from Crypto is Macro Now, put it best in her note today:&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“So, will the next BLS commissioner be able to avoid large revisions going forward? Obviously, they’ll have to if they want to keep their job, which elevates the temptation to publish late or to suppress new information as it comes in. Neither will be an improvement on the current situation.”
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We’ll be on “labor report fallout watch” all week, so keep an eye on your inbox.



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Stocks move higher after July jobs report dip

<div id="highlights-block_616075b83ef17" class="highlights">
 <ul>
 <li>The US nonfarm payroll report showed 194,000 jobs were added, less than half of expectations </li>
 <li>Economists say we are in a recession, according to consumer sentiment data </li>
 </ul>
 
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With consumer expectations and third-quarter earnings estimates on the decline, September’s jobs data brought more of the same.&nbsp;



The US economy added just 194,000 in nonfarm payrolls in September, compared with 366,000 in August, coming in less than half of the Dow Jones estimate of 500,000, the Labor Department <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">reported</a> Friday.&nbsp;



September’s unemployment rate came in at 4.8%, a decline from August’s 5.2%. Wages increased despite the jobs numbers, the average hourly earnings year-over-year in September increased 4.6%, compared with 4% in August.



<div class="embed-container"><iframe src="https://fred.stlouisfed.org/graph/graph-landing.php?g=IPyf&amp;width=670&amp;height=475" scrolling="no" frameborder="0" style="overflow:hidden;" allowtransparency="true" loading="lazy"></iframe></div><script src="https://fred.stlouisfed.org/graph/js/embed.js" type="text/javascript"></script>



Friday’s report also included revision data, which increased previous months’ reports. August’s disappointing numbers were revised up by more than 100,000 to 366,000 from the initially reported 235,000.



“It actually was better than it appeared, to be honest,” said Tom Essaye, founder of Sevens Report Research. “If you look at the revisions for August, the revisions were pretty positive.”&nbsp;



Leisure and hospitality once again led to jobs gains, adding 74,000 positions to the sector. Transportation and warehousing, construction, and manufacturing also saw high gains.&nbsp;



The education sector saw the largest decline in terms of job growth. Local government education employment decreased by 144,000 in September and state government education positions declined by 17,000. Experts are largely attributing the decline to covid-related issues and do not expect the trend to continue.&nbsp;



“That&#8217;s sort of a weird anomaly, that&#8217;s not something that people think is structurally going to continue,” Essaye said. “I don&#8217;t want to say it&#8217;s a good number, certainly we would have liked something much higher, but it&#8217;s not quite as bad as sort of was made out to be when the number first came out.”&nbsp;



New research released Thursday from David Blanchflower of Dartmouth College and Alex Bryson of University College London suggests that even with revisions and increases in wages, America is still likely in a recession. The two economists point to consumer expectations indexes from the Conference Board and <a href="https://cms.blockworks.co/inflation-heats-up-as-economic-data-comes-in/">University of Michigan</a>, both of which revealed declining sentiment in recent months, as a key indicator of American economic downturns.&nbsp;



“These surveys are much more important than anything macro forecasters are doing,” <a href="https://www.youtube.com/watch?v=_-jmDyg0AcE">said Blanchard</a> of the two reports.&nbsp;



The Conference Board consumer confidence index declined for a third straight month in September. University of Michigan’s preliminary consumer sentiment index inched slightly higher in September but remained near a decade low.&nbsp;



“However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now,” Blanchflower and Bryson said in the report.&nbsp;



Regardless of the disappointing data, Essaye remains confident that we should expect to see some sort of tapering from the Federal Reserve before the end of the year.&nbsp;



“I think definitely the Fed will taper by the end of the year,” he said. “In order for the Fed not to taper, I think that the data would have to turn down really hard.”&nbsp;