There are rising risks across various facets of the US economy, says David Rosenberg, a chief economist and strategist at Gluskin Sheff.

Even the September jobs report, which showed that the unemployment rate fell to a 49-year low, had several warnings beneath the surface.

Additionally, investors face a "triple threat" from rising rates, a stronger dollar, and surging oil prices.

Another risk-off day as the global bond sell-off bites into equity markets.

The really big news was not so much the data flow, since much of the bump-up in the US looks transitory (more on this below), but Federal Reserve Chairman Jay Powell's comments that neutral is a ways off and that the Fed likely has to pierce that "normal" policy rate level have certainly resonated with the Treasury market and rate-sensitive stocks. Call this a different form of "taper tantrum" but with similar market effects.

While there is no shortage of cheerleaders over Friday's employment report, I saw more dark clouds than silver linings. To be sure, the headline (+134,000) was softer than expected, but with the big upward revisions to the back data (+87,000 over the last two months), many are saying this was really a 200,000-plus figure. Then again, maybe the sudden deceleration is reflective of something else going on, and the recent bullish survey data reflecting sentiment rather than hard dollars being committed.

What's buried in the jobs report

Several things stand out for me. First, the US is running out of workers. The pool of available labor shrunk 422,000 in September and is down nearly 10% over the past year, the lowest since 2006. Increasingly, with the unemployment rate for skilled and educated people down to a drum-tight 2%, businesses are compelled to turn to unskilled workers to fill the job openings — to such an extent that since May, folks with a high-school diploma or less have been responsible for 100% of the employment gains in the United States. I'm not sure what that means for productivity growth or training costs, but it can't be very good news for profit margins.

The overall U-3 unemployment rate dropped to 3.7%, the lowest since 1969, from 3.9%. Sounds like great news, but even in the jobs market, you can have too much of a good thing. Consider that the last time we had such a tight labor market, a recession followed (in early 1970) within a year. Nobody saw it then (except for Gary Shilling), and nobody sees one today. Humans are conditioned to be optimistic, but recessions and bear markets have been part of the landscape for centuries nonetheless.

There were some signs beneath the surface of the impact of rising tariffs and the firmer dollar on the industrial sector. While factory payrolls did manage to rise to 18,000, the manufacturing workweek was cut 0.2% for the second month running, and overtime hours (-2.9%) fell for the first time since May, providing a much bigger offset. Look for a decline in September industrial production when the data comes out on October 16.

Indeed, total labor input — I'm referring to fresh bodies and time at work — ‎barely budged last month. The index of aggregate hours worked eked out a 0.1% gain, and the three-month trend has downshifted notably to a 0.7% annual rate from 3.0% at midyear. Throw on trendlike productivity of 1%, and we are talking about real gross-domestic-product growth drifting back to about a 2% annual rate, which will come as a surprise to the majority who see 3-4% as being the new normal.

One last item worth noting and that is not at all consistent with the widespread perception of accelerating economic momentum: Those working part time because of economic conditions jumped by 263,000, something we haven't seen since May 2016, and more cause for pause on the consensus bullish growth view. And the household survey, when put on a comparable footing with the establishment survey (on a population- and payroll-concept adjusted basis), saw employment fall by 272,000 in the sharpest setback since last March.

David Rosenberg. Gluskin Sheff

ISM services surprise

On Wednesday, the nonmanufacturing ISM caught everyone off guard with a two-decade-high reading of 61.6 in September. (This was the metric that provided that further lift in 10-year Treasury yields through what had been a firm ceiling of 3.1%.) Optimism came first, followed by euphoria. But is it justified? My sense is that it is not, and here's why, after seeing some very interesting anecdotes in The Wall Street Journal:

"Much of the sector's September growth appears to come from positioning in preparation for the Trump administration's tariffs and retaliatory tariffs from foreign countries.

"Anthony Nieves, who oversees the ISM survey of purchasing and supply managers, said businesses in the services sector were increasing inventories, importing and exporting in anticipation of coming trade actions."

This is affirmed by the commentary we saw in the latest Fed Beige Book as well as the industry comments in the ISM surveys. There is widespread evidence of accelerating purchases and orders to get ahead of the future inflated costs caused by the uncertain trade situation.

And there is something else to consider, which came across loud and clear with the blowout public-sector construction data for August released earlier this week (not shared, mind you, by the private sector) — and this pertains to the end-of-fiscal-year budget spending at the lower level of government:

"Many local municipalities, which are counted as service-sector contributors, had fiscal deadlines looming, encouraging spending."

This is what Mr. Nieves had to say on the matter:

"Any of the capital expenditures that they might have on their budget, they have to use up their budget dollars before their fiscal year ends ... accelerating their spending."

Very interesting, don't you think?

And not just that, but "recent storms could be to blame for the ramped-up growth in the services sector" — as in Florence. Come to think of it, the nonmanufacturing ISM turned in a very similar pop, which proved short-lived, in September of last year in the aftermath of Hurricane Harvey.

So the lSM surprise boiled down to three nonrecurring factors:

Bringing forward buying activity to escape costly tariffs. City and state government officials scrambling to use up their budget allocations before the fiscal year-end. The "stimulus" from the post-hurricane rebuilding phase.

As Steve Miller would likely recommend to the bulls who bought into the data at first blush, "take the money and run."

A triple threat to the outlook

There are all sorts of macro divergences elsewhere. Manhattan real estate is deflating. Mall vacancy rates hit a seven-year high in the third quarter, to 9.1%, and correspondingly, average rents slipped 0.3% in the first sequential decline since 2011, when most pundits were nervous over double-dip risks.

Which makes Powell's comment at a conference of business leaders last week very curious:

"There's no reason to think that the probability of a recession in the next year or two is at all elevated."

Holy big surprise coming to him, Batman!

Ben Bernanke said almost exactly the same thing on January 10, 2008: "The Federal Reserve is not currently forecasting a recession." The recession had already started!

And even as the US economy was entering into a major deflation of the technology capital stock in late 2000, Alan Greenspan thought we only had a mild inventory withdrawal on our hands. (By January 2001, he saw what it really was and began cutting rates inter-meeting.)

Here is what Greenspan said on December 19, 2001, three months ahead of the downturn: "The problem, as I've indicated on numerous occasions and as a number of you have commented, is that we do not have the capability of reliably forecasting a recession."

Just to put Powell's no-recession call into a certain context — very likely the kiss of death, if history is any example — the Fed, for all its Ph.D. economists and sophisticated macroeconomic models, has never seen a recession even when it was staring the central bank in the face. Best to fade this round of Powell bravado.

We have a triple threat to the outlook from rising rates, a stronger dollar (how can the greenback not go up further with 10-year rate spreads off bunds jumping to a record high of nearly 270 basis points?), and the supply-side led surge in oil prices (WTI at fresh four-year highs of over $76 per barrel and Brent already has traded north of $86). On the latter, reality is setting in, perhaps everywhere but in the White House, that the Saudis and Russians do not have the spare capacity to fully cover the loss of Iranian exports. Now put that in your gas tank and smoke it!

Bond yields may rise further, but sentiment is so bearish and positioning so negative that it is hard to believe this won't pose a buying opportunity for patient investors with a long-term horizon. We do have a massive fiscal deficit, which will only get bigger, and we also have less buying support from the Fed as well as China.

But keep in mind that the Treasury will not be missing any interest payments or forcing investors to take any haircuts. The reality is quite different in the corporate sector, whose balance sheet is at least as overextended as Uncle Sam's. S&P 500 debt/sales ratios, at 45%, compare with 30% when this cycle began — a cycle that has seen the investment-grade bond market more than double in size, to $6.3 trillion from $2.5 trillion, in just the past decade. This is where this cycle's bubble resides.

And perhaps this fact is becoming more widely acknowledged because fund flows are subsiding. (In fact, in the high-yield space, investors yanked more than $2 billion in September, the largest one-month net redemption since May 2016.) Note that, in contrast to the last crisis, this is not about the banks this time around. In fact, at about 10x price/earnings multiples on forward earnings, they trade more cheaply than depressed emerging-markets stocks do at the moment — a 40% discount to the overall US market (at least 10 percentage points wider than normal).

Clouds over US stocks

‎As for the US equity market, this year's global darling, there are some clouds worth mentioning. In another tip of the hat to The Journal, I see that since the start of the third quarter, the analysts actually have trimmed their estimates to +21.6% year-over-year from +23.4% — still lofty, but directionally a deceleration from both Q1 and Q2, and the cuts in forecasts stand in direct contrast to the upside revisions at this stage of the second quarter.

Not just that, but companies are now pre-announcing much more negatively than they have in the past. So far, the Q3 negative-positive ratio stands at 2.0x, compared with 1.5x at this same stage for Q2 results in early July. And watch what happens when the tax-cut effect fades — the margin-squeeze impact from higher wage growth, rising interest costs and the dollar strength will be biting even harder. Not to mention the impact of fading growth overseas in Europe and much of Asia.

In addition to all these future impediments to growth, let's tack on what rising oil prices (good for producers, but not so good for retailers) will do to real purchasing power — gasoline prices nationwide are now quickly headed to a four-year high of $3 per gallon, the equivalent of a $40 billion tax hike to the personal sector.

David Rosenberg is a chief economist and strategist at Gluskin Sheff, the previous chief North America economist at Merrill Lynch, and the author of the daily economic report "Breakfast with Dave." Follow him on Twitter @EconguyRosie.