THE WEEK AHEAD

Markets (and the Federal Reserve (Fed)) get a read on the health of the labor market as the September Employment Report is released on Friday.

MACROECONOMIC INSIGHT

Friday’s report is expected to show that the economy added 70,000 jobs while the unemployment rate remained steady at 4.4%. While much airtime will be spent dissecting those headline figures, we want to focus on two other aspects of this report: the change in private payrolls (Chart A) and the yearly change in average hourly earnings (Chart B).

While the trend for both of these figures is generally positive, recently the growth in each has begun to moderate. The percent change in private payrolls has been range bound between 1 to 3% since the beginning of the most recent recovery and currently sits around 1.7%. In the past we’ve looked for indications of stress when that figure drops below 1%. In this case, with regards to the growth of private payrolls, the labor market appears to be on relatively solid ground.

The trend for wages is positive on a year-over-year basis, though growth has sat around 2.5% since earlier this year. The lack of inflation can explain away some of the stagnant wage growth. With payrolls expanding and the unemployment rate where it is, one could reasonably argue that the labor market is nearing full employment – in which case we would expect to see wage growth pick up in the coming months.

Chart A

Source: Bloomberg

Chart B

Source: Bloomberg

ECONOMIC DATA THIS WEEK

Date	Report	Period	Survey	Prior
Monday, Oct 2:	ISM Manufacturing Index	Sep	57.5	58.8
	PMI Manufacturing Index	Sep	—	53.0
	Construction Spending M/M	Aug	0.4%	-0.6%
Tuesday, Oct 3:	Domestic Vehicle Sales	Sep	12.5M	12.48M
	Total Vehicle Sales	Sep	16.6M	16.03M
Wednesday, Oct 4:	ADP Employment Report	Sep	160K	237K
	ISM Non-Manufacturing Index	Sep	55.1	55.3
Thursday, Oct 5:	Weekly Jobless Claims	Sep 30	—	272K
	International Trade	Aug	-$43.9B	-$43.7B
	Factory Orders	Aug	0.7%	-3.3%
Friday, Oct 6:	Change in Nonfarm Payrolls	Sep	70K	156K
	Change in Private Payrolls	Sep	55K	165K
	Unemployment Rate	Sep	4.4%	4.4%
	Average Hourly Earnings M/M	Sep	0.3%	0.1%
	Average Hourly Earnings Y/Y	Sep	—	2.5%
	Average Weekly Hours	Sep	34.4	34.4
	Labor Force Participation Rate	Sep	—	62.9%
	Underemployment Rate	Sep	—	8.6%
Source: Bloomberg

ASSET ALLOCATION PORTFOLIO POSTURE

Based on shorter-term expectations, the “tactical” allocation within portfolios is equally weighted between bonds and stocks.

 Client approved reports and commentaries click here

Kevin Caron, CFA, Senior Portfolio Manager

Chad Morganlander, Senior Portfolio Manager

Matthew Battipaglia, Portfolio Manager

Suzanne Ashley, Analyst

(973) 549-4052 www.washingtoncrossingadvisors.com www.stifel.com

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