Here Comes Holiday Season 2014

As the third quarter ends and investors tally returns, attention will once again return to the more mundane issues, like job creation, economic growth and of course, the all-important holiday season. Economists predict that companies stepped up the pace of hiring to 215,000 from the softer than expected August result of 142,000 and the unemployment rate is likely to remain at 6.1 percent. September numbers should be helped by the return to work of up to 25,000 workers at the New England grocery store Market Basket who walked out in late July. However, some of that effect will be offset by the recent closure of a number of large casinos in Atlantic City, which should reduce employment by 6,500. Regardless of these month-to-month fluctuations, the positive trend remains in tact. Most of the business surveys indicate that labor conditions have improved, households are saying that jobs are more plentiful and initial jobless claims are close to a 14-year low.

Despite the improvement in the labor market over the past year, the effects of the Great Recession are still impacting many Americans. According to a report from Rutgers University, more than 20 percent of those who were laid off over the past five years are still unemployed; and one in four who found work, is stuck in a temporary job. Of those who were lucky enough to land a new position, 46 percent say they had to take a pay cut and 44 percent reported a drop in status.

For those who kept their jobs, wages have remained largely flat and that may be due to the fact that many companies chose the more palatable option of freezing, rather than cutting wages during the recession. Because they did not lower wages during the downturn, employers have been slower to increase them as the economy has improved. The good news is that this condition can only last for so long. As the economy improves, the competition to attract and retain employees will increase and wages will rise.

If job creation and wage growth improve, that leaves one more area of concern for the labor market: the participation rate. Participation rate, or the number of American workers employed or actively seeking work, has been bumping along 35 year-lows of 63 percent, with no sign of picking up any time soon. Fed Chair Janet Yellen has noted that the low participation rate is one of the signs of “slack in the labor market”. Specifically, economists worry about the percentage of prime-working-age Americans, those between 25 and 54, who are in the labor force. As of this summer, the percentage fell to a 30-year low and for prime-working-age men, the number has dropped to the lowest reported since the government began computing the figure in 1948.

At issue is why all those people are not in the labor force. Research by the Cleveland Federal Reserve Bank attributes nearly half of the decline in participation since 2007 to aging, while 10 to 35 percent may be attributable to a weak labor market. That means that even if the labor market were to substantially improve, the participation rate may remain low over the longer-term, which the research defines as a decade. The research may mean that Fed policy makers may want to be careful about using a low participation rate as a rationale for keeping rates low.

Beyond jobs, the big focus as the economy enters the final quarter of the year will be consumers. The holiday season could turn out to be better than in the past if the job market and the economy gain steam. Last week, the first of the holiday sales predictions was released: Deloitte sees a sales increase of between 4 to 4.5 percent from November through January. That would be a modest improvement over last year's 2.8 percent gain to $944 billion, according to U.S. Commerce Department data that excludes auto and gasoline sales. But the mood and behavior of consumers has been mercurial throughout the recovery. Unless there is a consistent, positive change in conditions, any end of year euphoria may have to wait until 2015.

MARKETS: It was the worst week for stocks in nearly two months. Bears will point out that the Russell 2000 index of small stocks is close to correction territory (down 8.5% from the summer highs), while the bulls will note that the small and momentum stocks had similar movements lower in the spring, only to fake out investors by bouncing back swiftly.

• DJIA: 17,113 down 1% on week, up 3.2% YTD
• S&P 500: 1982, down 1.4% on week, up 7.3% YTD
• NASDAQ: 4512, down 1.5% on week, up 8% YTD
• 10-Year Treasury yield: 2.53% (from 2.58% a week ago)
• November Crude Oil: $93.54, up 2.1% on the week
• December Gold: $1215.40, down 0.1% on the week (lowest close since Dec 31, 2013)
• AAA Nat'l average price for gallon of regular Gas: $3.34 (from $3.42 a year ago) By the end of the year, up to 30 states could have an average gasoline price of less than $3/gallon, according to a recent GasBuddy forecast

THE WEEK AHEAD:

Mon 9/29:

8:30 Personal Income and Spending

10:00 Pending Home Sales

Tues 9/30:

9:00 Case Shiller Home Price Index

9:45 Chicago PMI

10:00 Consumer Confidence

Weds 10/1:

Automobile Sales

8:15 ADP Private Payrolls

9:45 PMI Manufacturing

10:00 ISM Manufacturing

10:00 Construction Spending

Thurs 10/2:

7:30 Challenger Job Cuts

8:30 Weekly Jobless Claims

10:00 Factory Orders

Fri 10/3:

8:30 Sep Employment Report

8:30 International Trade

9:45 PMI Service

10:00 ISM Non-Manufacturing