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September Labor Figures to Decide U.S. Presidential Election?

08/29/2012

On Monday evening, August 27, John Hilsenrath, chief economic correspondent for the Wall Street Journal, appeared on CNBC’s Fast Money to discuss the September 12-13 FOMC meeting. I asked John if he felt the FOMC was facing the moment of acknowledgement that the discouraging condition of the U.S. labor market is structural and in dire need of fiscal initiatives rather than further monetary easing measures. John acknowledged that the FOMC may very well be embarking on that debate. I expect that debate will intensify and expand beyond the FOMC no matter who wins the seat in the Oval Office on November 6.
 
At the very least, it must be considered that those who are fortunate enough to finally secure employment after a long layoff are accepting lower wages to do so. Labor Department figures show that 54% of the long-term unemployed accepted a pay cut to secure a job. Furthermore, 33% of those re-employed accepted wages at least 20% lower than their previous job. That is a structural challenge for all elected officials to tackle, whether Republican or Democrat. 
 
In recent days, final U.S. economic data points have been released for August, closing out the month. Keep in mind that during August, the S&P 500® Index (SPX) rather quietly traced out a new four-year high on August 21 at 1426.68 (Figure 1.1). I highlighted in my August 17 blog “Updated S&P Technical Formation” what to watch for to suggest an impending SPX correction.
 
With most of the August economic data now released, economists are providing their initial forecasts for the September 7 U.S. unemployment report. Initial consensus estimates look rather soft. A range of reasons have been cited: the “calendar reality of the January fiscal cliff;” moderation in improving labor figures fueled by a modest housing uptick in hard-hit housing states like California and Florida; a budgetary pause in temporary worker hirers as retailers anticipate and position for holiday season temporary worker hires; and lastly continued domestic weakness in the manufacturing sector.
 
•  Nonfarm Payrolls +100,000 to +125,000, down from last month’s +163,000 (Figure 1.2)
•  Private Payrolls +110,000 to +140,000, down from last month’s +172,000
 
These initial figures are obviously soft and suggest last month’s recovery was a “one-off.” We could witness revisions higher to the forecast after this week’s Initial Jobless Claims report, next Tuesday’s ISM Manufacturing index, or next Thursday’s ADP report. Keep in mind the FOMC will be able to respond to a soft September 7 labor report with further easing measures the following week. Therefore, a soft labor report might be less impactful for the SPX direction. However, it will certainly impact the U.S. presidential election. In fact, I suggest the September 7 labor report and subsequent September 13, 20, and 27 Initial Jobless Claims figures could decide the outcome of the election.
 
Currently Mitt Romney trails in the Electoral College. His best opportunity to close the gap or pull ahead in key battleground states such as Florida, Virginia, Ohio, and North Carolina, would be during the month of September if consistently soft labor figures, which are now forecasted, actually are presented. 
 
On Thursday evening, September 6, President Obama’s speech closes out the Democratic National Convention. However, the words that will matter most from the president will be the following morning during his monthly post-labor report remarks.
 
Figure 1.1 S&P 500 Index (SPX),  June 2008 to Present

Source: Bloomberg
 
Figure 1.2 U.S. Nonfarm Payrolls, January 2011 to Present

Source: Bloomberg

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