🇺🇸 US jobs data could prove the Fed right

🔍 The focus this week: The job market is priority number one

The Federal Reserve (Fed) lowered borrowing costs by half a percentage point earlier this month, officially kicking off its first rate-cutting cycle since the pandemic. The bigger-than-expected reduction signals that the Fed is serious about preventing further weakening in the job market. That stance seems well-timed: the latest employment report showed the US economy added a less-than-expected 142,000 jobs during August. That, combined with big downward revisions to June and July’s figures, meant that the pace of hiring over the three months through August slowed to its lowest level since the early days of the pandemic – a worrying sign for the economy at large.

Now, both the Fed and investors will get more insight into the health of the job market later this week, when the US Labor Department releases its key monthly employment report on Friday. Forecasters believe that September was a slightly better month: they’re expecting the report to show that 150,000 jobs were added while the unemployment rate stayed flat at 4.2%.

A jobs number below that or an uptick in the unemployment rate would vindicate the Fed’s decision to start its easing cycle with a jumbo-sized rate cut. The central bank, after all, was widely criticized for hiking rates too slowly when the economy faced its worst bout of inflation in 40 years. And now, if it doesn’t respond swiftly to the faltering job market, it could risk a further rise in the unemployment rate – and that could lead to a pullback in consumer spending, increasing the likelihood of a recession.

That said, even if Friday’s figures are better than expected, that doesn’t necessarily mean the Fed made a mistake by opting for a bumper half-point cut. Inflation in the US is currently hovering at 2.5% – not too far off the central bank’s 2% target. That, combined with a job market that’s starting to look rough around the edges, suggests that economy-choking high interest rates are far from necessary. And let’s not lose sight of the bigger picture: even after the latest cut, the Fed’s benchmark interest rate, at a range of 4.75% to 5%, is at its highest level since 2007.

📅 On the calendar

• Monday: Japan industrial production and retail sales (August), China PMIs (September), UK M4 money supply (August).
• Tuesday: Japan unemployment rate (August), eurozone inflation (September), US job openings and labor turnover survey (August). Earnings: Nike.
• Wednesday: Eurozone unemployment rate (August).
• Thursday: US factory orders (August). Earnings: Constellation Brands.
• Friday: US labor market report (September).

👀 What you might’ve missed last week

US

• Consultancy firm Bain predicted that the global AI market could be worth $1 trillion by 2027.
• US consumer confidence unexpectedly fell by the most in three years.

Europe

• Business activity in the eurozone shrank, surprising analysts who’d expected a modest expansion.

Asia

• China unveiled a broad package of stimulus measures to boost the ailing property market and wider economy.

✍️ What does all this mean?

The global AI market is booming, with tech firms rushing to build data centers to train and run AI models while software-as-a-service providers increasingly integrate the super-smart technology into their products. That push to innovate means the market for AI-related services and hardware hit $185 billion last year. And it seems that’s just a start: consultancy firm Bain released a report last week that predicted the market will expand by an average of 40% to 55% every year until 2027, to potentially hit a total value of $1 trillion.

A survey last week showed US consumer confidence unexpectedly fell in September by the most in three years. Americans are growing increasingly concerned about the labor market, with many of them citing fewer hours, slower raises, and less job openings. Case in point: a closely watched metric tracking the difference between folks who say jobs are plentiful and those who say jobs are hard to find fell for the eighth straight month – the longest streak since the Great Recession of 2008-09. Despite this, many consumers still see a low chance of recession, though some believe the economy is already in a downturn.

The eurozone’s latest Purchasing Managers’ Index (PMI) showed business activity in the region shrank in September. Analysts had predicted a modest fall from August’s 51 to 50.5. But the bloc’s PMI actually sank to 48.9, dipping below the 50 mark that separates growth from contraction for the first time since February. The decline was led by the eurozone’s two biggest economies, Germany and France, both of which saw business activity drop off by far more than expected.

China’s struggling economy was in the spotlight this week, too. The country’s authorities unveiled a broad package of stimulus measures designed to reinvigorate the world’s second-biggest economy. The moves included a cut to a key short-term interest rate and a reduction in the amount of money that banks must hold in reserve, a bid to encourage them to hand out more loans. Measures were also announced to shore up the nation’s troubled property sector, including lowering borrowing costs on outstanding mortgages and easing the minimum down-payment ratio for second-home purchases. Finally, a $113 billion fund will be set up to help certain companies buy stocks and others afford share buybacks.

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