Donald Trump and Ben Carson better hop all of over the dreadful September jobs report this weekend to boost their chances vs. Joe Biden or Hillary Clinton.
And make no mistake about it, what happened in the jobs market last month was absolutely awful. Here is what you should be seeing in this report:
1. Slowing job growth right into the holiday season. At 142,000 jobs created in September, it was well below the 198,000 year-to-date average. The weekend papers will spread the doom and gloom, which is why I am closely watching sales of Halloween related items -- it could offer valuable clues as to how consumers are thinking about spending in November and December after their hours or pay have been cut (or they lost a job).
2. Corporate America reacted quickly over the summer to reduce the number of workers and their hours. We not only received a disappointing headline jobs figure for September, but serious downward revisions dating back to July and August. Further, the temporary employment boom turned into a bust in September -- part-time positions fell a worrisome 447,000. Businesses only take these actions if order rates are slowing or if ongoing weak conditions require additional restructuring. We have seen a plethora of job reduction news of late, including Hewlett-Packard (HPQ), Bebe Stores (BEBE), ConAgra Foods (CAG), and Wal-Mart (WMT).
3. Stalled incomes, as seen in September, are bothersome in the context of many companies raising prices to offset higher minimum wage costs and health care outlays. Dunkin' Brands (DNKN), for example, saw traffic slow in the third quarter in part because franchisees hiked prices to offset minimum wage increases nationwide. With incomes stalling, it gives consumers less of a chance to buy the items they want, while businesses deal with the consequences in the form of missed earnings forecasts.
4. Companies in the early stages of production, such as construction, manufacturing and mining, had poor jobs showings last month. It could point to more lackluster reads on the economy in the weeks ahead.
I think the market's initial reaction to the lackluster jobs report (down considerably) is absolutely correct. It's not about Fed watching at this point, it's about rationalizing what happened to the global economy during the summer and the impact to companies as they report earnings soon and guidance for the fourth quarter. Fed Chair Janet Yellen could come out today and say rate increases are off the table until 2016 and the market would deserve to stay down.
The U.S. economy is battling an early case of the flu that stands to linger until we get some pro-growth policies going in the country. I am not saying the market can't rally here and there this year and next, but we are learning that a change in the White House is needed quickly and along with it, new ideas on how to get the economy back to sustainably solid growth.
In terms of trading this report, I would be playing it with a bias to the downside in small-caps and consumer discretionary.
