The Dow and broader US stock market wobbled on Thursday, as Wall Street grew increasingly fearful that upcoming data readings will augur the impending conclusion of the US economy’s longest-ever expansion.
Dow Lurches Toward Third Straight Loss
Wall Street’s major indices traded without conviction on Thursday, following two days of mammoth declines. The Dow Jones Industrial Average slid 48.7 points or 0.19% to 26,029.92.
The S&P 500 managed to edge higher, adding 3.23 points or 0.11% to trade at 2,890.87.
The Nasdaq also assembled a slight recovery, ticking up 12.68 points or 0.16% to 7,798.33.
US Economy Teeters on the Brink
The Dow and its peers struggled to recover from their two-day bloodletting, as fears about crucial economic data reports paralyzed investors.
Later this morning, ISM will publish its September nonmanufacturing index, which measures the health of the economy’s services sector.
Wall Street will closely monitor this report, which comes just two days after the ISM purchasing managers’ index (PMI) unexpectedly plunged to its lowest level in a decade (47.8), contracting for a second straight month and raising significant concerns about the state of US manufacturing.
The unexpected PMI miss thrust the Dow toward a 343.79 point decline on Oct. 1, which marked the index’s worst loss since August. That mark stood for precisely one session, as the Dow plummeted 494.42 points the next day.
Wednesday’s ISM nonmanufacturing report will help analysts discern whether the slowdown is isolated to the manufacturing industry – which has been even more volatile than usual, courtesy of the trade war – or has begun to pervade the wider economy as well.
Services account for more than 80% of the US economy, so a poor reading would be a significant recession warning.
Dow Jones economists forecast a print of 55.3, a reading that would indicate robust expansion. A print below that consensus estimate would trigger alarms, even though the services sector can underperform by a wide margin and still avoid a reading below 50, which would indicate contraction.
“If for some reason, [ISM services] drops to 52, 53, anything that’s below consensus … that would raise the concern that services output is beginning to slow as well, and you’d get that same picture if employment is weak as well,” Michael Gapen, chief U.S. economist at Barclays, told CNBC.
Weakening Labor Market Threatens Consumer Spending
Equally as important is Friday’s nonfarm payrolls report, which investors fear will confirm a labor market slowdown.
Wednesday’s ADP private payrolls report found that the private sector had added just 135,000 jobs in September, and the 2019 monthly average now stands at 145,000 jobs – a steep dropoff from 2018’s monthly average of 214,000.
Last week, a Commerce Department report revealed that US consumer spending had virtually stalled in August, rising just 0.1% as job growth waned.
A strong services sector and robust consumer spending have buttressed the US economy throughout the trade war. However, a poor ISM nonmanufacturing reading, combined with a weakening labor market, could expose vulnerabilities in an economic expansion that is now the longest in US history.
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