Is the U.S. economic recovery slowing? What the September jobs report reveals

On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Research Analyst Laura Bardewyck discussed market reaction to the first U.S. presidential debate as well as the latest economic data from the U.S. and Europe. They also provided an update on the resurgence of the coronavirus in parts of the world.

Markets indifferent to inaugural U.S. presidential debate

The first U.S. presidential debate between President Donald Trump and Democratic Party challenger Joe Biden was held Sept. 29 in Cleveland. Ristuben characterized the interest level in the debate as intense, while noting that the market reaction in its wake was fairly muted.

“The lack of a strong market reaction was probably the right reaction, because mixing politics with investments can be dangerous. I believe it’s better to invest in the way the world is, rather than the way you want it to be,” he stated. In addition, the U.S. government is designed specifically to make it really difficult to enact big changes, Ristuben said, noting that’s likely another reason why markets didn’t react strongly to the debates.

“Simply put, the worst-case scenarios that both sides of the political spectrum have been entertaining when it comes to the potential agendas of Congress or the presidential administration in 2021 are probably not going to happen. I would expect much more moderate shifts in U.S. policy, if anything,” Ristuben said.

Manufacturing continues to expand in Europe and U.S.

Economic data released the week of Sept. 28 was incrementally positive, Ristuben said, with IHS Markit’s purchasing managers’ index (PMI) for the U.S. manufacturing sector rising to 53.2 in September, while the eurozone manufacturing PMI climbed to 53.7. A reading above 50 indicates expansionary conditions, while a reading below 50 indicates contractionary conditions.

“Both the U.S. and European manufacturing sectors are well into expansionary territory—and the same holds true in China, which is even further along in its economic recovery,” he stated. Consumer confidence is also on the rise across Europe and even more so in the U.S., Ristuben said, noting that the Conference Board’s index of U.S. consumer confidence logged its highest monthly increase in 17 years.

Meanwhile, the Bureau of Labor Statistics reported that the U.S. added 661,000 new jobs in September—a number Ristuben characterized as good, albeit lower than consensus expectations of 800,000 additional non-farm payrolls.

“This deceleration in hiring is an indication of the difficulties still confronting the American economy, due to the fairly significant numbers of COVID-19 cases, which are preventing many states from fully reopening. While the economy is moving forward, it’s also carrying the weight of COVID-19 with it, which is slowing the overall rate of recovery,” he explained. Ristuben stressed that although progress has slowed, it’s important to understand that the U.S. economy is still moving in a positive direction.

COVID-19 developments: Trump tests positive, European infections on the rise

The news that President Trump tested positive for COVID-19 on Oct. 2 is jarring and creates uncertainty in markets, Ristuben said, but he cautioned against overreacting to the situation. “The U.S. has a well-defined system of government,” he noted, adding that Trump’s diagnosis shows just how unpredictable and difficult it is to prevent the spread of the virus.

The situation in Europe also illustrates this well, Ristuben stated, noting that the region now appears to be experiencing a second wave of the coronavirus, after seeing a massive decrease in cases and deaths over the summer. However, Ristuben said that so far, Europe’s second wave pales in comparison to what the region experienced during March and April. “The latest measures announced by authorities in Europe to combat the virus are intended to prevent a return to what was seen in the spring,” he remarked.

Ultimately, the resurgence of COVID-19 in Europe shows that the coronavirus is still the largest single risk factor to the health of the global economy, Ristuben said. “This is a fact that the world can never lose sight of,” he concluded.

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