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US Claims Data Corroborate Factory Sector Stumble

Matt Eidinger October 3, 2019

In another sign the US manufacturing sector is struggling, weekly jobless claims rose to 219,000 during the week ending September 28, exceeding market expectations of about 215,000, according to the US Department of Labor (DOL).

Layoffs in manufacturing accounted for many of the new filings in Michigan (+4,258), Missouri (+1,224) and Tennessee (+1,191) – lending credence to recent fears of a manufacturing slowdown in the USA.

Today’s reading on the labor market comes just two days after the Institute for Supply Management (ISM) reported the lowest reading on manufacturing in the past decade. According to the survey, manufacturers attributed the greater than expected decline in activity to “…a continuing decrease in business confidence,” and were cautious regarding employment expansion in the coming months as well.

In contrast, continuing jobless claims fell to 1,651,000 during the week ending September 21 – slightly beating market expectations set at 1,654,000. The less volatile four-week moving average was 212,500 – unchanged from last week’s revised figures.

Another labor-market data release issued Wednesday echoed the theme of manufacturing sector weakness. Private sector payroll data from Automatic Data Processing (ADP) indicated the first pullback in private sector employment growth since May 2019 and only 2,000 new manufacturing positions, coming after only 8,000 during August and only 1,000 in July.

Also on Wednesday, the World Trade Organization ruled that EU subsidies to aerospace giant Airbus SE were illegal – prompting the US to announce a fresh round of tariffs on $7.5 billion worth of European aircraft and agricultural exports. 

Broad-based dollar strength continues to be the focus in FX markets this week as investors fleeing to safety – as a result of yesterday’s WTO ruling and resulting tariffs – prompted the US dollar to rally a full cent against the Canadian dollar yesterday afternoon and through the night. The story came to a halt this morning, as the USD’s advance against its northern peer halted at a one-month high.

Across the Atlantic, the Euro has regained some of its lost strength against the greenback, but remains near a two and a half year low with difficulty breaking out above resistance levels near 1.096.

As a result of the weakness in manufacturing and ongoing trade uncertainty, overnight indexed swap rates at the CME group point to a 74.3% chance of a third interest cut from the US Federal Reserve on October 30. Markets are on the fence regarding a fourth cut in December.

Although there has been a slump in business confidence, especially in the manufacturing sector, US consumer sentiment continues to hold steady. While yesterday’s private sector payrolls came in slightly worse than expected, the Federal Reserve will be intently focused on tomorrow’s nonfarm payrolls as it contemplates its position regarding a thirs – and potentially a fourth – move to lower interest rates. 

Matthew Eidinger
Fintech Specialist, dealing operations

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