Fed Rate Cuts Depend on Unreliable Data, Why Jobs Reports Are a Warning. And 5 Other Things to Know Today.

At first glance, it’s strange that the revision didn’t trigger more panic. An increase of 114,000 jobs in July, falling short of forecasts of 175,000, was enough to send the market into turmoil. The latest revision is a much bigger hit to the supposed strength of the U.S. labor market. But as with most things markets related, timing is everything.

There is important context. The change only affects data that are five months old at this point. It could even make recent payrolls figures look better, by indicating they are not as far below previous gains as feared. With dovish Fed minutes also issued Wednesday and Fed Chair Jerome Powell set to speak at the Jackson Hole meeting on Friday, traders weren’t about to overreact.

Still, it does hint at a deeper problem—which is that the Fed is depending on unreliable data to guide its interest-rate policy. Since the Covid-19 pandemic, response rates to surveys used for gathering information about the jobs market have been relatively low worldwide. In the U.K., the Office for National Statistics had to temporarily stop issuing its headline estimate of unemployment due to low response rates. Things aren’t that bad in the U.S., but major adjustments after the fact have become commonplace.

The next jobs report, due on Sept. 6, is expected to light the touchpaper for rate cuts. The data will likely also determine if it starts with a quarter-point or half-point reduction. Central bankers and the markets have little option but to take the data as they come but it’s worth bearing in mind that the true picture could look very different when the revisions come rolling in.

— Adam Clark

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Central Bank’s Minutes Strengthen Hopes for September Move

Federal Reserve officials discussed cutting interest rates at their July meeting before voting unanimously to hold the federal funds rate steady where it has been since July 2023. While “several” officials saw a case for a July cut, the “majority” saw a better case to be made for September.

• Although some officials noted that recent inflation progress and unemployment rate increases provided a plausible case for a quarter percentage-point reduction in July, officials ultimately decided to wait for more data before changing the target rate.
• The vast majority observed that if the data continued coming in about as expected, a rate cut would likely be appropriate at the next meeting, the minutes said. July’s subsequent weaker-than-expected jobs report raised recession fears, while July inflation data was largely tame.
• There were 818,000 fewer jobs created in the 12 months through March, according to revisions of previously published numbers by the Bureau of Labor Statistics. That means the average net new jobs added each month was 173,500, down from 242,000 previously reported.
• Interest-rate futures markets are putting a 64% probability on a quarter-point interest-rate reduction in September, with the balance in favor of a half-point cut, according to CME’s FedWatch tool. Chair Jerome Powell is scheduled to speak Friday from the Jackson Hole Monetary Policy Symposium.

What’s Next: August jobs data will be released Sept. 6, and the August Consumer Price Index will be published on Sept. 11. If the August jobs report is weaker than expected, with more signs of businesses retrenching, Wednesday’s jobs revisions could amplify calls for a half-point rate cut.

— Megan Leonhardt, Nicholas Jasinski, and Janet H. Cho

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U.S. Economy Faces Turmoil from Canada’s Rail Strike

Canada’s two main railroads were shut down on Thursday after the two operators failed to avert a strike involving around 9,000 employees represented by the Teamsters union. That’s the second time in two years the country has faced large-scale industrial action.

• Canadian National Railway and Canadian Pacific Kansas City have both halted operations. Canadian National said in a statement Thursday that it had formally locked out employees after the union failed to respond to a final attempt to prevent the action.
• Canada’s Chamber of Commerce has said the shutdown could affect the flow of about $730 million worth of goods a day. Commodity markets are likely to feel most of the pain —Canada is the world’s second-biggest potash fertilizer exporter after Russia, and the U.S. is one of its top trading partners. It also sends hundreds of millions of dollars worth of wheat, grain, and oilseeds across the border each year.
• The American Chemistry Council is among the trade groups warning about the impact the lockout could have. It estimates the U.S. imports nearly $25 billion of chemicals from Canada a year, including about 60% of the chlorine used to treat water in western states.

What’s Next: While economists seem to think the short-term impact to growth will be negligible, over the longer term the industrial action might weigh on Canada’s reputation as a place with which to do business.

—George Glover

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Bargain Hunters Boost Target But Weigh on Macy’s Outlook

Retailers’ latest earnings reports show people are spending, but hunting for bargains. Discounters Target and TJX Cos. both raised their full-year profit outlooks after better-than-expected results. Department store operator Macy’s beat per-share estimates, but lowered its full-year sales forecast to reflect a “more discriminating consumer.”

• Target CEO Brian Cornell said consumers are “incredibly resilient” and focused on value amid inflation and other household budget challenges. Comparable sales rose 1% in the quarter ended Aug. 3 from a year ago. Shopper visits increased 3% after it cut prices, but the average purchases got smaller.
• TJX, parent of T.J. Maxx, Marshalls, and HomeGoods, said earnings-per-share, net sales, and same-store sales all came in above projections. CEO Ernie Herrman reported a “strong start” to the current quarter, saying TJX aims to expand its market share in all geographies.
• Macy’s lowered its full-year net sales and same-store sales outlook, but maintained its earnings forecast, after its quarterly sales and same-store sales both missed projections compared with the year-ago period. CEO Tony Spring said more people are browsing than buying.
• Retail spending at stores, online, and restaurants rose by a stronger-than-expected 1% in July from June, the biggest jump since January 2023. A 3.6% increase in vehicle sales contributed to the increase, after a cyberattack affecting dealerships hurt June sales.

What’s Next: Starbucks kicks off Pumpkin Spice Latte season today, two days earlier than 2023, marking the unofficial start to fall and/or back-to-school. The coffee retailer’s drinks this year include Pumpkin Cream Cold Brew, Iced Pumpkin Cream Chai, Apple Crisp Oatmilk Macchiato, and a new Iced Apple Crisp Nondairy Chai.

— Sabrina Escobar and Janet H. Cho

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Ford Dumps Electric SUV Plan, Will Build More Hybrids

Ford Motor has changed its mind about developing an all-electric, three-row sport-utility vehicle, as it shifts its EV strategy to adjust to lower-than-anticipated buyer demand and greater competition from Chinese EV rivals. Ford previously announced that it was pushing the vehicle’s launch to 2027.

• Ford also postponed a new electric pickup truck to 2027. It will instead invest in more large hybrid SUVs that run on gasoline and batteries, including its Ford Explorer and Expedition brands. Ford will take $1.9 billion in charges and write-downs related to the shift in strategy.
• Ford is reducing its investment in fully electric vehicles to 30% of its budget, from 40%, after losing about $44,000 on every EV sold in the June quarter. Ford said its EV business could lose about $5 billion this year. EV sales rose 7% in the first half of 2024, slower than the 46% gain in 2023.
• General Motors last month similarly postponed its Buick electric vehicle and pushed back on plans to open an EV truck factory. GM CEO Mary Barra said GM still plans to unveil new EV models in coming months.
• Ford CEO Jim Farley said Ford is committed to innovation, job creation, and delivering new EVs and hybrids that reduce carbon dioxide, and that its current plan maximizes customer choices while playing to Ford’s strengths.

What’s Next: Ford is still planning to launch an electric commercial van in 2026, and two pickup trucks, including a midsize pickup, in 2027. Chief Financial Officer John Lawler said Ford will adjust its plans depending on the market and consumer demand.

— Janet H. Cho

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Franklin Templeton Says Senior Executive on Leave Amid Investigations

Franklin Resources is closing a $2 billion asset macro bond fund after the Co-Chief Investment Officer of its Western Asset Management Co. received a notice from the Securities and Exchange Commission that an enforcement action could be filed as it investigates trade allocations in Treasury derivatives.

• The SEC recently sent a Wells notice to Ken Leech, a longtime fixture of Western Asset, the company said. Leech is on a leave of absence, effective immediately, to focus on the matter. Michael Buchanan, who had been co-chief investment officer with Leech, was named the sole investment chief of Western Asset.
• Leech oversaw the $2 billion Macro Opportunities fund, and Western Asset said closing it was in clients’ best interests in light of his leave. A spokesperson for the firm declined to comment further. A Wells notice tells a person or company the regulator intends to bring an action, but it doesn’t always.
• Franklin, also called Franklin Templeton, disclosed in July it had launched an internal investigation into certain past trade allocations involving Treasury derivatives in select Western Asset-managed accounts, and that Western Asset was notified of parallel investigations by the SEC and the Justice Department.
• The firm said Wednesday it is cooperating with the parallel government investigations. Leech joined the firm in 1990 and before his leave of absence led the global portfolios, U.S. broad portfolios, and macro opportunities teams, according to Western Asset’s website.

What’s Next: Franklin’s stock fell more than 12%, its biggest one-day drop since October 2020. TD Cowen analyst Bill Katz said in a note that while “there seems to be more questions than answers at present, we suspect the issue is limited in scope, and the stock move an over-reaction.”

— Rebecca Ungarino and Liz Moyer

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Many couples follow the strategy of having one spouse start receiving Social Security benefits before the other, and postponing the other spouse’s start date until the benefit is maximized at age 70.

But what happens if the spouse that was going to wait until 70 dies before reaching that age? MarketWatch looked at survivor benefits.

For more on this, read here.

—Alessandra Malito

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner