If you were waiting for the labor market to save the soft landing narrative this week, you probably found a lot to be desired. The all-important non-farm payroll number came in below expectations, but with the unemployment rate ticking down to 4.2%, the narrative is likely to continue that the labor market is slowing but a collapse isn’t imminent. If you take those numbers in conjunction with other labor market data released this week, the concern level should be higher. The Challenger job cuts number shot way higher in August. The JOLTS job opening report looked much worse than expected. The ADP employment report showed a smaller increase than forecasted. In the past, you could argue that some numbers looked good, some not so much, so there was no major imminent risk to the labor market contracting. Now we’re starting to see a pretty strong consensus across the board that it is contracting, maybe even accelerating, and this could be the domino that ends up tipping the economy.
The other major theme I watched this week was the continued deterioration in the manufacturing space. It started with China reporting a worse than expected slowdown in the manufacturing PMI number before the U.S. followed up with a similar result. That spilled over into worries about demand in the energy market and sent oil prices sharply lower. Nothing is really falling off a cliff yet, but we have a lot of these signals all telling the same bearish story. If jobs, manufacturing and energy demand are all slowing at the same time, these are some of the biggest cornerstones of the global economy. Even if the U.S. can manage to pull off the soft landing, it’s looking increasingly unlikely that every area of the world will be able to do the same. Asia is in trouble. Europe may or may not be able to sustain its tepid recovery. If these regions start to buckle, it’s hard to imagine this not eventually spilling over into the United States.
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