Wednesday's indicators reveal 'more downbeat' economic data

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Two of Wednesday’s indicators, including one measuring employment, missed expectations, leading one analyst to suggest Friday’s jobs report will be much "softer" than projected.

Private payrolls increased by 365,000 in October, after climbing a revised 753,000 in September, initially reported as a 749,000 jump, ADP said Wednesday.

Economists polled by IFR Markets projected 650,000 jobs would be added.

“The ADP report and ISM services reading showed large parts of the economy are weakening and that should keep the pressure on the Congress to deliver fiscal support,” said Ed Moya, senior market analyst at OANDA. “The ADP report showed hiring is slowing and no one would be surprised if next month turns negative. Small business and manufacturing jobs posted significantly softer hirings and that should raise some red flags for Friday's non-farm payroll report.”

Ed Moya, senior market analyst at OANDA

And while ADP is not considered a strong indicator of how the employment report will turnout, Moya said, “October will likely see some job gains, but possibly softer than the 600,000 consensus estimate. The labor outlook will be much worse for November.”

According to Scott Anderson, chief economist at Bank of the West, the private sector payrolls gains have “moderated substantially” since peaking in June and “could slow further in the months ahead amid a rise in coronavirus cases and the failure of Congress to agree on a stimulus package to support the increasingly at-risk labor market recovery,” he said.

ISM non-manufacturing PMI
The Institute for Supply Management’s non-manufacturing PMI index fell to 56.6 in October from 57.8 in September.

Economists expected a 57.5 PMI read.

The business activity index dropped to 61.2 from 63.0

“The ISM report showed softness that will likely get much worse as COVID-19 continues to relentlessly spread across the nation,” according to Moya. “Retail spending will remain strong, but the rest of the service sector will struggle.”

New orders dipped to 58.8 from 61.5, employment dropped to 50.1 from 51.8 and supplier deliveries gained to 56.2 from 54.9.

Inventories rose to 53.1 from 48.8, prices jumped to 63.9 from 59.0 and backlog of orders climbed to 54.4 from 50.1.

“Then there was more downbeat economic data today with the ISM Services Index falling,” according to Anderson. “The slowest pace of growth in five months was driven by a rise in the number of new coronavirus cases that dampened demand for consumer services yet again.”

The largest declines, he said, were in new orders, business activity and employment.

“But on the other hand, there were big increases in prices paid that could further dent service business profitability," Anderson said. "On the bright side 16 of the 18 service industries still reported growth in October, led by transportation and warehousing, and construction.”

International trade
The international trade deficit narrowed to $63.9 billion in September from a revised $67.0 billion in August, first reported as a $67.1 billion shortfall, the Commerce Department said Wednesday.

Economists predicted a $64.0 billion deficit.

Exports in the month were up 2.6% to $176.4 billion, while imports climbed 0.5%, to $240.2 billion in the month.

"The trade data showed the deficit narrowed, but both imports and exports are nowhere near their pre-pandemic levels," Moya said.

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