iStockphoto The aftermath of too much sugar.
As every parent and every former child knows, the aftermath of a sugar high is unpleasant for everyone involved.
Somehow investors thought that this universal truth might not apply to the fiscal boost from the Trump tax cut. But with growth clearly slowing, the market seems to be coming around to the view that all sugar highs end. This is one reason that U.S. stocks are on pace for their worst October since 2008.
Read: The global selloff has erased $5 trillion from stock and bond markets in October
“We’ve gone from a world where people were not expecting a downturn to [one] where it’s become the central question,” said Lewis Alexander, chief U.S. economist at Nomura Securities.
In this environment of heightened sensitivity to bad news, all the economic data will get extra-special attention.
Growth in the third quarter came in at a decent 3.5% annual rate, but business investment was weak and higher interest rates have taken a big bite out of the housing sector.
See: GDP ‘impressive,’ but investment is a weak spot, economists say
There was much talk that the Trump tax cut would create a wave of productivity-enhancing improvements. This has not occurred.
“The policies that are aimed to help competitiveness and to stimulate business spending, while universally lauded by economists, have not borne fruit,” said Robert Brusca, chief economist at FAO Economics.
Opinion: Slump in capital spending hints that corporate tax cut is fizzling
Investors shouldn’t expect anything dramatic in the near-term data, Alexander said. After all, the economy isn’t falling out of bed, but is expected to slow back to 2% growth, still above the “trend” rate that keeps labor-market conditions tight.
The October employment report will be the most important indicator of the coming week. Alexander forecasts that nonfarm payrolls will grow by 170,000 jobs in October, up from the 134,000 jobs added in September. That’s a bit below the MarketWatch survey’s median forecast of 199,000 job gains.
The average monthly gain of jobs over the prior 12 months was 201,000 in September.
Alexander agreed with the MarketWatch forecast that the unemployment rate will hold steady at 3.7%. The unemployment report will be released on Friday at 8:30 a.m. Eastern time.
Alexander said he thinks the unemployment rate will eventually fall to a 3.2% rate from the September reading of 3.7% before turning upward.
Another key indicator, the Institute for Supply Management’s manufacturing index, is expected to decline for the second consecutive month to a reading of 59.1%.
