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September
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Week In Review

Employment

Nonfarm payrolls grew by 156,000 in August and were revised lower by a cumulative 41,000 jobs in June and July. The unemployment rate rose to 4.4%. The labor force participation rate was unchanged at 62.9%. Average hourly earnings grew just 0.1%, while average weekly hours fell to 34.4 from 34.5.

Our Take

The employment report was considerably weaker than expected. The employment picture will have to brighten considerably over the next few months if the Fed hopes to be able to use it as a basis for a third rate hike in 2017.


GDP Revision

Third quarter GDP was revised to an annual 3.0% rate, up from 2.6%. Consumption, business investment, inventories, residential investment, and net exports were all revised higher. Government spending was revised lower.

Our Take

Consumers accounted for most of the GDP growth increase, as the most recent retail sales report included positive revisions. Despite the solid second quarter, first half growth remains close to the seemingly never-ending 2% level. A continuation of the subpar growth environment is the most likely scenario, as it is difficult to identify any solid catalysts which could drive future growth.


Brexit

The UK and the EU ended a round of Brexit talks with very little progress made. The two sides remain deadlocked over the size of any payment from the UK to the EU, and the EU will not discuss the post-Brexit relationship until this matter is settled. The EU’s chief negotiator held a press conference in which he sharply criticized the UK government’s positions.

Our Take

The longer the two sides wait to discuss a post-Brexit trade agreement, the greater the chance of the UK leaving with no deal in place when the timeline runs out. This would be the worst outcome for both sides, but there is currently not enough political pressure on the parties to get them to compromise and reach a deal.


France

Macron’s government unveiled a plan to reform the French labor market through the use of five decrees allowed by recent legislation. These reforms mirror those implemented in Germany over a decade ago and will give French employers more flexibility in hiring and firing and negotiating pay and work rules. Two of France’s largest unions negotiated with the government on this package of reforms and a third called for protests.

Our Take

Macron is making good on his pledges to reform France’s economy and make it more globally competitive. Structural reforms such as those being implemented in France are the most critical part of improving European growth.


Municipals

Illinois Governor Bruce Rauner signed a bill into law on Thursday, which puts a new state school funding formula into place. Under the new law, school districts will receive no less than the amount of state funding received last year. The law changes the way state aid is distributed, with more funding going to districts with a high percentage of low-income students. Under the new law, Chicago Public Schools will receive $450 million more than last year, which includes additional funding for its teachers’ pensions and allows the board of education to raise property taxes to generate additional revenue for pension funding.

Our Take

By signing the bill, the uncertainty surrounding school funding ends. Governor Rauner had previously called the additional funds for Chicago Public Schools a bailout and had vetoed the previous bill. The school funding law relieves some financial pressure on local school districts as the school year begins. The end of the Illinois school funding stalemate along with a state budget in place is viewed as a positive for bondholders.