Liz Rappaport
John Lonski, chief economist at Moody's Investors Service, points to higher reports of consumer confidence as a key sign that the labor market remains strong and that household debt problems may be contained.
The Conference Board reported Tuesday that its index of consumer confidence rose to its highest level in almost six years. Also, the weekly reports of jobless claims have "been hovering at levels associated with private payroll growth of 184,000," writes Michael Darda, MKM Partners' chief economist, who estimates payrolls grew 116,000 in July. "A blowout [number] on either side [of expectations] would likely be interpreted negatively" by the markets. Indeed, too weak and we're headed for recession. Too strong, and the Fed stays on the sidelines. Bespoke Investment Group analyzed the S&P 500's performance after the jobs report has been announced. Cutting the data to focus on conditions similar to today's, in which interest rates are falling and the S&P 500 is oversold, Bespoke found that when nonfarm payrolls are released into such an environment, the S&P 500 falls 0.52% on average on the day of the release "regardless of the report's outcome." As for the idea of a Fed cut to "rescue" the financial markets, both Lonski and James Bianco, president of Bianco Research, are quick to point out that while credit spreads have risen to 434 basis points over Treasuries from record lows around 260 basis points in June, they are now at historically more normal levels vs. being truly extreme.
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