This week's big event might not actually happen, as payrolls Friday could be the first high profile victim of a potential government shutdown if Congress is unable to reach an agreement on a short-term funding resolution by midnight tomorrow night (see our preview here "Here's What Happens When The US Government Shuts Down On Oct 1 And How Markets Will React"). Indeed, as Deutsche Bank reminds us, back in October 2013, the shutdown meant we didn’t get the September jobs report until the 22nd of the month.
We'll preview both below, but the other main highlights this week are:
The full day-by-day calendar of events is at the end as usual.
Turning to the week's main event, fears of a shutdown rose significantly last week, particularly after Trump cancelled a meeting planned with the Democratic leaders in the House and the Senate. But yesterday we heard that Trump will be meeting Democrat and Republican leaders today to try to broker a deal. So that helped the probability of a shutdown this year on Polymarket to fall from 84% yesterday to 63% this morning.
Such an event could still be later in the year if a stop-gap is put in place this week but overall the probability of one occurring is deemed to be more likely than not before the end of the year. Remember that even though the Republicans have a majority in both chambers, they still need Democratic votes in the Senate, as there’s a 60-vote threshold to avoid the filibuster.
If there is a shutdown, all non-essential federal employees would be furloughed, which DB's economists estimate would cost the economy 0.2% per week on an annualized GDP basis. The longest shutdown was the 35 days straddling the end of 2018 and start of 2019. In 1996, we had one for 21 days and in 2013 one lasting 16 days. Others have lasted a few days or even only hours and before federal workers' alarm clocks went off.
If we don't see the shutdown and payrolls then get released, it’s a very important number given the recent negative revisions and real-time downtrend in new hiring, not to mention the Fed and market reaction function. We could be set for some notable volatility around these prints going forward as the breakeven payroll rate now seems to be around or under 50k per month. Given the naturally wide distribution of payroll numbers, this brings the prospect, and perhaps even the likelihood, of negative prints. These prints may not reflect the underlying trend but could lead to big moves. Given the breakeven rate has always been higher in our careers, we are not really conditioned to negative prints being within the margin of error, so reactions to such prints may be not be rational if and when they happen.
Having said that, for this month DB's economists expect a rebound on the headline to +75k (consensus +50k) against +22k last month. For private payrolls they also expect +75k (consensus +60k) against +38k last month. The unemployment rate is expected to remain unchanged at 4.3%. So, the point above is more of an ongoing one over the coming months and quarters.
Tomorrow's JOLTS report is also important but only refers to August. So it’s always behind but is perhaps the more reliable indicator of the labor market. So far it has been fairly stable and indicative of a low hiring and low firing labor market. So stable, but with low numbers on both sides, and therefore it wouldn't take a big change in the direction either way to make a big difference. We also have ADP on Wednesday and then we think jobless claims on Thursday would likely be released in a shutdown as it’s compiled by states. This happened in the 2013 shutdown but we can't be 100% sure. Elsewhere for employment trends, the jobs hard/plentiful measure in tomorrow's consumer confidence, as well as the employment subcomponents in the two ISM readings this week will also be important for the current state of play in the US labor market.
The one other thing to say is that the start of Q4 on Wednesday brings the start of the multi-year German stimulus package. Given most careers have been soundtracked by German fiscal discipline, then we will all have to get used to a changing narrative. It's fair to say that investors have become more pessimistic over the summer as to the extent of the difference it will make (just check out the DAX swoon after the early 2025 blast off) . However, some of this is just impatience and the momentum could kick into gear again soon. There is some disappointment that more will be directed to consumption than the initial infrastructure and defense bias suggested, but it shouldn't change the near-term multiplier much, just the long-term potential growth rate.
Staying in Europe, the focus will be on the flash CPIs for September starting with Spain and Belgium today. Prints for Germany, France and Italy will be released tomorrow and the Eurozone print will be out on Wednesday. Our European economists preview the releases here. They expect a 2.22% report for the Eurozone, with country-level forecasts including 2.34% for Germany, 1.12% for France and 1.67% for Italy. Finally, the September CPI report is also due for Switzerland on Thursday.
Courtesy of DB, here is a day-by-day calendar of events
Monday September 29
Tuesday September 30
Wednesday October 1
Thursday October 2
Friday October 3
Finally, looking at just the US, key economic data releases this week are the JOLTS report on Tuesday, the ISM manufacturing index on Wednesday, and the employment report and the ISM services index on Friday. There are several speaking engagements by Fed officials this week, including events with Governor Jefferson on Tuesday and Friday. But again, if the federal government shuts down on October 1, most data releases from federal agencies will be postponed until after the government reopens.
Monday, September 29
Tuesday, September 30
Wednesday, October 1
Thursday, October 2
Friday, October 3
Source: DB, Goldman