Key US data releases and events

Employment bests expectations, fails to lift markets. The October payroll survey showed a brighter picture of the labor market than expected, with 171,000 jobs created and upward revisions to August and September. The unemployment rate did edge higher, as anticipated, as strong job creation in the household survey was outweighed by even stronger labor-force growth. But the employment-population ratio and the labor-force participation rate both increased—that's good news, not bad. Politically, there was something for both candidates, as President Obama can point to faster job creation, while Governor Romney can say that unemployment is higher now than in January 2009. On balance the report should help the incumbent, but not sufficiently so to be a game-changer. Market reaction was muted, with stocks quickly forfeiting mild gains after the report. Perhaps markets are wary of being fooled by distorted year-end jobs numbers again. Or perhaps 170,000 just isn’t enough to signal a stronger pace of recovery. Or perhaps markets are holding their breath ahead of the elections like everyone else.

At long last, the election. Economic data will be an afterthought for markets this coming week due to the election. Either outcome could provide a “certainty” dividend for markets looking for clarity, although a Romney win might be cheered more forcefully. But the economic reality is much more nuanced. While we lack many details, simulations of IHS’s US macroeconomic model show that if either candidate implemented their economic plans in full, tighter fiscal policy would put economic growth at risk in 2013, compared to our baseline forecast that assumes more compromise. In the Obama simulation, lower growth in 2013 (relative to our baseline) is the result of higher upper-income marginal tax rates. In the Romney simulation, it comes from deep cuts in discretionary nondefense spending, Medicaid, transfers to states and localities, and elimination of extended unemployment benefits. Romney’s tax plan is revenue-neutral, so there is no benefit from higher aggregate demand. Longer term, both plans show benefits from lower corporate tax rates on capital costs and investment. Romney’s plan would have a bigger impact on long-term economic growth due to a stronger labor-supply response to lower marginal tax rates, as well as a larger reduction in the federal budget deficit. Ultimately, we do not think that either plan will be implemented in full, since the most likely outcome is divided government. Whoever wins will have to work with Congress and the Senate to foster compromise.

Monday, 5 November – ISM Non-Manufacturing Index (Oct.)

• IHS Global Insight: 55.3
• Consensus: 54.5
• Last Actual: 55.1 (Sep.)

What to look for

• Acceleration in nonmanufacturing activity

Implications

The ISM Non-Manufacturing Index is expected to edge up to 55.3 in October. This suggests a faster pace of growth in nonmanufacturing industries and (combined with the stronger ISM manufacturing reading) the overall economy.

Thursday, 8 November – International Trade (Sep.)

• IHS Global Insight: -$45.0 billion
• Consensus: -$45.0 billion
• Last Actual: -$44.2 billion (Aug.)

What to look for

• Import growth to outpace export growth, causing a wider deficit

Implications

The trade deficit is expected to widen to $45.0 billion in September, as imports rebound more strongly than exports from the August slump. Higher oil prices likely joined with stronger consumer demand to lift imports, while exports get a small boost from industrial demand.

Friday, 9 November – Consumer Sentiment (Nov., preliminary)

• IHS Global Insight: 83.0
• Consensus: 82.9
• Last Actual: 82.6 (Oct.)

What to look for

• Further gains in confidence

Implications

The Reuters/University of Michigan’s Consumer Sentiment Index likely increased in the mid-November reading, along with other recent evidence from the consumer side of the economy. But the impacts of Hurricane Sandy and the November elections on sentiment are difficult to gauge and remain the big unknown.

by Nigel Gault and Paul Edelstein