August Stormy

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Special Guest Blogger: Tim Kearney

A volatile August kicked off in July, with the Federal Open Market Committee’s messaging that its July 31 interest-rate cut was essentially a “mid-course correction.” It appeared at that point the Fed was data-dependent. The Trump administration’s decision to impose further tariffs on Chinese goods affected that outlook from the growth side as well as the policy side. On the growth side, there already was evidence that uncertainty over trade and the global economy was inhibiting investment, thus hindering the potential for growth to break out on the upside. On the policy side, it is not clear how or if the Fed will respond to the trade tensions, and that in itself adds uncertainty.

Good economic news gave a helpful but temporary lift to sentiment. Nonfarm payrolls printed a whisper below the 165,000 consensus. Most interestingly, manufacturing payrolls continued to rebound, up by 16,000 and well above the consensus for a 5,000 rise. Payrolls are a coincident indicator; the manufacturing statistics could reflect stabilization or a slight increase in that sector. Given the business uncertainty over trade and consequent slowing of capital investment, however, the paradigm might just be that businesses are seeing continued demand and are filling it with labor rather than committing to capital inputs.

Please follow capital expenditure, on page 11, and employment, on pages 63–65, of the Global Perspectives book.

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