Recent economic data has suggested the Fed will be forced to raise rates later this month at the next round of FOMC meetings on the 21st and 22nd.  But it may not be a given after all with another GDP Estimate Revisedround of surprises today when the ISM Manufacturing Survey was released this morning. According to the data, the new reading for August came in below 50 at 49.4. Any reading above 50 shows an increase in manufacturing activity while anything below indicates shrinkage. This is at the core level of economic activity and contraction would ultimately find its way into the retail sector. That might very well keep the Fed on the sidelines after all.

 

We’re also going to get the much-awaited August jobs report when both the unemployment rate and job creation will be reported by the Bureau of Labor Statistics. Many analysts are looking for new, non-farm job growth to be somewhere close to 180,000. Not bad but still a rather tepid number. So far this year, especially so for the second quarter, job creation has surprised many with stronger than expected numbers. If another surprise number comes in closer to what we’ve seen recently with the number closer to 300,000 and 200,000, it would confirm recent trends and then the Fed does have some thinking to do.

If employment is stronger and there are definite signs of job growth the case for raising rates would be stronger yet weak manufacturing will also mean wage gains could be relatively non-existent for the next couple of months. That could mean falling retail purchases and limited price increases, if any. The markets have become so concentrated on what the Fed does or does not do that positive economic numbers provide less positive reaction compared to negative data which produces a much greater response. Once we get some good news on the economic front, markets pull back and the cycle starts all over again. Somehow we need to break this chain.