Post ISM Commentary & US Jobs Report Preview
The Friday October 1st ISM release provided investors with further evidence that FOMC will decide to expand the size of its balance sheet from $2 trillion at the two day November FOMC meeting. Using this past week's comments from New York Fed President William Dudley as a guide, the ISM internals do not suggest " we will see better outcomes for both employment and inflation." I believe the market has already priced in a $500 billion asset purchase boost. The market may begin to price in a balance sheet expansion beyond $500 billion if this Friday's unemployment report is very weak.
1. The gap between new orders and inventories shrank further, now negative @ -4.5 points, the lowest since January 2009.
2. The employment gauge @ 56.5 was the lowest reading since March 2010.
3. Production @ 56.5 and New Orders @ 51.1 were both the lowest readings since June 2009.
U.S. Jobs Report Preview Friday, October 8
1. Headline estimate range from minus 10,000 to plus 10,000 jobs from last month's minus 54,000.
2. Private Sector Job increase from last month's plus 67,000 to a range this month of plus 75,000 to plus 95,000.
3. Unemployment Rate uptick to 9.7% from last month's 9.6%.
Last Friday's ISM report is evidence that the recovery is late in the cycle and accurately suggests a "soft patch." Historically, late stage recoveries exhibit similar "soft patches" or slowdowns. The recent ISM internals highlight a slowdown in the Manufacturing recovery.
The sentiment surrounding this Friday's jobs report has very low expectations. Any surprise, particularly in Private Sector job growth (North of +100,000), will be to the upside.
While some suggest the potential for a double dip recession is well above 25%, I completely disagree and believe the chances are below 10%. The only double dip we will experience in 2010 is in Pessimism.