October is often seen as a tumultuous month for the markets, yet the last month’s performance tells a different story. Asset prices remained stable, with most major asset classes enjoying notable gains, continuing the positive momentum from September. The Global Market Index (GMI) recorded a 2.8% rise in October, bringing its year-to-date increase to an impressive 12.0%.
This Halloween, the labor market shows no signs of fright. New unemployment benefit claims dropped again last week, decreasing by 10,000 to a seasonally adjusted total of 340,000. While this level remains elevated compared to recent historical data, it indicates progress in the right direction. Recent discrepancies in the data series are fading, revealing a hopeful trend of decreasing claims. Notably, claims fell 7% year-over-year for the week ending October 26, marking the largest decrease since late September. This trend suggests that, despite some recent fluctuations, the labor market continues to expand.
The ISM Manufacturing Index is projected to experience a slight uptick to 56.3 in tomorrow’s October release (set for November 1), according to the Capital Spectator’s average econometric forecast. This estimate indicates a minor increase from September’s figure of 56.2. In contrast, the average forecast from three consensus polls of economists suggests a notable decline for the ISM number compared to the previous month.
According to the latest update from the ADP Employment Report, payrolls grew this month by only 130,000, the smallest increase since April. This figure approaches the lowest growth rate seen in recent years and raises new concerns regarding the economic outlook. Mark Zandi, chief economist at Moody’s Analytics, which collaborates with ADP on this data, stated, “Any further weakening would signal rising unemployment.” He added that the sluggish job growth is visible across various industries and company sizes, as detailed in the accompanying press release (pdf).
Despite a 2.2% drop in auto sales last month, the overall update on September retail sales appears satisfactory at first glance. However, focusing solely on selective data can be misleading. Retail spending growth year-over-year slowed last month to a rate nearing its lowest in three years. Is this a troubling indicator? It’s too early to tell. The recent discussions surrounding the government shutdown and potential Treasury default may have skewed the figures. Optimistically, some attribute the slowdown to a relative lack of shopping days. It will take a few more months of data to accurately gauge the situation. For now, the weakness in today’s report, especially with auto sales included, leaves many uncertain about future trends.
While I have great respect for recent Nobel laureate in economics, Robert Shiller, I can’t let his remark about the business cycle slide unaddressed. He commented, “The world economy is softening a bit,” in a recent interview with Yahoo Finance. He added, “There’s always a chance of another recession. It’s been six years since the last recession started — they tend to come along with some regularity.” However, to label the timing of recessions as regular is misleading; there is nothing consistent about when recessions occur.
Industrial production exceeded expectations with a 0.6% increase in September compared to August, marking the best monthly performance since February, as reported by the Federal Reserve. Year-over-year output also rose by 3.2%, the most substantial annual gain since last November. However, this positive surprise largely stemmed from sectors outside manufacturing, which only grew by 0.1% last month. This disparity raises questions about potential challenges ahead. A wobbling manufacturing sector often signals uncertainty about future conditions. While it’s premature to draw conclusions, today’s mixed report will certainly warrant close monitoring until we receive better insights from upcoming economic updates, starting with tomorrow’s delayed retail sales data for September.
Some economists argue that the American economy would benefit from a bit more inflation to break free from several years of sluggish growth and high unemployment. A recent New York Times article points out an increasing concern among Federal Reserve policymakers that inflation is not rising quickly enough as they approach their upcoming meeting this week.
I will be attending the half-day conference titled “The Evolution of Active Asset Allocation” in New York on Tuesday, October 29. Consider joining me! The event is free, courtesy of S&P Dow Jones Indices, and it features an intriguing lineup of speakers and topics. The only catch? Participants must register in advance. I am particularly keen on the final session focusing on “Ideas and Innovations in Asset Allocation using ETFs.”
● WRONG: Nine Economic Policy Disasters and What We Can Learn from Them
By Richard Grossman
Q&A with author via Boston.com
Q: You have a book coming out this October about economic policy disasters and what we can learn from them. Tell me about that.
A: I identified nine significant economic policy mistakes from the past couple of centuries, conducting a kind of economic autopsy to uncover the reasons behind their occurrence and discover recurring themes.
Q: What insights did you uncover?
A: The primary theme seems to be that severe missteps arise when policymakers are guided heavily by ideology. For example, if a certain percentage of a political party commits to never raising taxes under any circumstances, that stance appears solely ideological. My book advocates for economic policy based on analysis rather than ideology.
