Is the U.S. Headed for a Recession? Bulls, Bears Make Their Case

(Bloomberg) --

Through all the noise around U.S. data this week, a clear signal is emerging: The world’s biggest economy is slowing down.

The question now is, how badly? On that score, Friday’s payroll report for September contained ammo for the optimists, as well as the pessimists -- and plenty for the Federal Reserve to ponder ahead of its next interest-rate decision.

The headline number for new jobs fell short of expectations. President Donald Trump looked past that, emphasizing the unexpected drop in unemployment to a half-century low of 3.5%. Traders may have focused on that number too, paring expectations for a third straight rate cut.

And Fed chief Jerome Powell didn’t mention the jobs report he told a Washington audience Friday that the economy is in a “good place” -- without giving any guidance about what to expect from the Oct. 29-30 rates meeting.

Data Mounting

A cut is still seen as the likeliest outcome, after a week of data that showed U.S. factories already in recession and service industries in the weakest state for three years.

“The economy is slowing, these reports are indicative of that,” Pacific Investment Management Co .’s chief U.S. economist, Tiffany Wilding, told Bloomberg Television. The jobs report wasn’t as bad as it could have been, she said, but the Fed is likely to cut again in October “because of broader indications of slowing growth.”

Read more: Dodge a Major Slowdown? A Lot Needs to Go Right

Here are some of the up- and down-arrows from the jobs report that U.S. monetary policy makers will be weighing in the coming weeks.

Wage Gains

Better than they look. While growth in average hourly earnings unexpectedly cooled to 2.9% from 3.2%, production and non-supervisory employees -- who make up the bulk of workers -- did better. Their pay rose 3.5%, down only slightly from the previous month’s decade-high of 3.6%.

Unemployment Rate

An unvarnished up-arrow. The jobless rate was the lowest since December 1969 and below all estimates in Bloomberg’s survey. The participation rate, which measures the proportion of working-age people who are in employment, held at 63.2%.

Demographic Groups

Some look pretty solid. Black unemployment held at 5.5%, a record low in data going back to the early 1970s, while the jobless rate among Hispanics fell to a new all-time low of 3.9%. The White House has seized on these numbers as a sign of progress, and Fed policy makers are likely to pay attention too, as they’ve spoken frequently this year about making sure economic gains are reaching more Americans.

Underemployment Rate

Improving. The underemployment rate known as U-6 slipped to 6.9%, the lowest since 2000, from 7.2%. Some analysts see this as a more accurate reflection of the labor market than the headline jobless rate, as it includes part-time workers who’d prefer a full-time position, and those who aren’t actively looking for work.

Job Growth

Wobbling. This year’s average rate of non-farm payroll gains has fallen to 161,000, down by a quarter from last year, while the figure for the private sector is down by a third to 143,000. But, but, but: July and August revisions added 45,000 jobs, and monthly job growth is above the 115,000-to-145,000 pace the Fed says is needed for unemployment to hold steady as the population increases.

“It’s quite mixed in that job creation has slowed but it’s still running above break-even rates,” said Michelle Meyer, head of U.S. economics at Bank of America Corp.

Manufacturing, Construction

Dimming fast. American factory gauges are heading south, and employment hasn’t been spared, falling by 2,000 jobs in September. It was one of the weakest readings in the past couple of years. Construction is in the doldrums too, with employment growth well below last year’s pace.

Job Leavers

A big vote of confidence. Voluntary job leavers as a share of the unemployed jumped to 14.6%, just under the 14.7% in June that was the highest reading since 2000. The figure, which has been steadily climbing for years, is seen as a positive indicator because it shows that Americans aren’t held back from quitting jobs they don’t like by the fear of not being able to find a new one.

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