Janet Yellen Pulls an Emily Litella

There are just three more jobs reports before the December Federal Reserve policy meeting and each one is carries even more weight than usual. The September data are out this Friday and the consensus is for the economy to add 200,000 jobs and for the unemployment rate to remain at 5.1 percent. While the pace of job creation has slowed from last year (it was hard to imagine that we could sustain 300,000 per month), even the Fed had to admit that gains in the labor market have been “solid”. So what are the central bankers looking for to convince them that labor market slack is diminishing? My guess is that high on the list would be to see annual wage growth pick up from the sub-par 2 percent level and move towards 2.5 percent; an increase in the participation rate (the number of people employed or actively looking for a job); a continued drop in part time workers who are seeking full time positions; and a decrease in the number of long-term unemployed.

Although the jobs report is the main focus the week, the Fed is also likely to examine data on manufacturing. And spillover from the slowdown in China and other emerging markets is likely to be seen in that sector. If manufacturing indexes hold steady, it would likely provide some solace to Fed officials concerned about a global economic deceleration.

Meanwhile, last week, Yellen seemed to brush aside the China worrywarts, when she said “we do not currently anticipate that the effects of these recent developments on the U.S. economy will prove to be large enough to have a significant effect on the path for policy.” In that same speech, Yellen also said that she expects “inflation will return to 2 percent over the next few years as the temporary factors that are currently weighing on inflation wane”.

So if the labor market is solid, global slowdown worries are overblown and inflation is likely to gradually increase, why didn’t the Fed raise rates at the last meeting? As Weekend Update’s Emily Litella (Gilda Radner) would say “Never Mind”.

But wait; maybe Congress will trump the Fed’s rate increase mission. Even if lawmakers pass a continuing spending resolution to keep the Federal government open through December 11^th, that’s just FIVE days before the last Fed meeting of the year. It could be déjà vu all over again (RIP Yogi), as we hurtle to the end of the year, talking about the raising the debt ceiling and defaulting on our obligations. Isn’t this fun?

MARKETS: The biotech sector is under siege again, as it has been at various times over the past couple of years. The biotech index tumbled 13 percent on the week and is now in bear market territory, off 22 percent from its recent high in July.

• DJIA: 16,314 down 0.4% on week, down 8.5% YTD
• S&P 500: 1,931 down 1.4% on week, down 6.2% YTD
• NASDAQ: 4,686 down 2.9% on week, down 1% YTD
• Russell 2000: 1122, up 3.5% on week, down 6.8% YTD
• 10-Year Treasury yield: 2.17% (from 2.19% a week ago)
• November Crude: $45.70, up 1.5% on week
• December Gold: $1,145.60, up 0.6% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.29 (from $2.30 wk ago, $3.34 a year ago)

THE WEEK AHEAD:

Mon 9/28:

8:30 Personal Income & Spending

10:00 Pending Home Sales

Tues 9/29:

9:00 Case Shiller Home Price Index

10:00 Consumer Confidence

Weds 9/30:

8:15 ADP Private Payrolls

9:45 Chicago PMI

3:00 Fed Chair Janet Yellen speaks at Conf of State Bank Supervisors

Thurs 10/1: 9:45 PMI Manufacturing Index

10:00 ISM Manufacturing Index

10:00 Construction Spending

Fri 10/2:

8:30 September Employment Report

10:00 Factory Orders