Weak jobs report has stock investors betting against a rate hike

How many economists still think the Federal Reserve is poised to raise interest rates this year after the disappointing September jobs number the Labor Department reported on Friday?
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How many economists still think the Federal Reserve is poised to raise interest rates this year after the disappointing September jobs number the Labor Department reported on Friday?

However many there are, many of the nation’s stock investors disagree with them. Major market indexes made sharp gains Monday in a move widely believed to be based on a conviction that the Fed will keep rates steady while the members of its Federal Open Market Committee await clearer signs that the economy is sustainably strengthening.

There were some indications of that last week. The Commerce Department said personal income rose 0.4 percent in August from July — a month when spending also increased by the same percentage — although consumer spending slowed to an 0.3 percent gain from a gain of 0.5 percent in July.

Consumer confidence, as measured by The Conference Board’s index, rose to 103.0 from 101.3 in August. It was the highest level for the index since January and it bucked economists’ expectations that confidence would drop.

“Gasoline prices are down and unemployment rates are down,” Stan Shipley, an economist at Evercore ISI in New York, told Bloomberg. “That’s a good combination for consumer confidence.”

Perhaps the best news came from the auto industry, where sales roared ahead in September. General Motors (12.5 percent), Fiat Chrysler (14 percent) and Ford (23 percent) posted double-digit percentage increases from the same month last year. Pickup trucks and SUVs sold well.

The Wall Street Journal said the auto industry is poised to have its best sales year since 2000 and said the online car buying service TrueCar raised its 2015 sales forecast to 17.4 million light trucks and cars, arguing that sales growth for the rest of the year is “poised to remain vigorous.”

The current week brings few economic reports, but two stand out — the Institute for Supply Management’s survey of U.S. service-sector activity in September and The Fed's report Thursday on consumer credit for August.

On Monday, the ISM’s latest snapshot of the service sector shows it expanded in September, but at a slower pace than in previous months. The ISM’s non-manufacturing purchasing managers index fell to 56.9 in September from 59 in August and 60.3 in July. The July figure was the highest level since the index began in 2008. Readings above 50 indicate an expansion; readings below that level refer to a contraction.

Fox Business reported that domestically oriented sectors of the economy have been advancing steadily in recent months, with sustained job growth and solid consumer spending, in part because of lower gas prices. Sectors more sensitive to overseas conditions, including manufacturing, are growing more slowly.

The Fed will issue a report on consumer credit on Thursday, and USA Today says it is expected to show a healthy $18.5 billion increase for August, noting that although much of the recent credit gains are for such things as auto and student loans, growth in credit cards has increased.

On the same day the Fed will release the minutes of its Sept. 17 meeting, where the central bank apparently came fairly close to raising interest rates for the first time in a decade.

The minutes figure to show how close the Fed came to pulling the trigger and what it might take for the central bank to act at its next meeting, on Oct. 27-28, or its last meeting of the year in mid-December.


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