We got a bit of a scare from the jobs report. Nonfarm payrolls rose a much weaker-than-expected 12K in October. Worker strikes, most notably at Boeing, reduced the headline gain by about 40K. The precise impact from Hurricanes Helene and Milton is much harder to discern, but the separate survey of households showed there were 512K workers who were not on the jobsite due to weather in October, suggesting that work disruptions played a major role in the payroll miss. The unemployment rate, which is derived from the household survey and counts those not working due to a strike or severe weather as employed, held steady at 4.1%.
Looking past October's noisy payroll print, downward revisions to the past few months of data point to a moderation in job growth. Employment gains were revised down 81K in August and 31K in September. Before the revisions, payroll growth averaged 186K in the third quarter. Incorporating the revisions, growth averaged 148K, which is roughly in line with the second quarter and down from the first quarter's 267K average.
Although the employment report feels like a mouthful of candy corn, full-size chocolate bars were still up for grabs this week. Real GDP expanded at a 2.8% annualized rate in the third quarter. Consumer spending accounted for a majority of the gain, increasing at a 3.7% annualized rate and rose with broad-based strength across goods and services. Households continue to face their fair share of challenges with still-high prices and uncertainty around the election outcome, but that has not deterred spending. Business fixed investment (+3.3%) and government spending (+5.0%) each expanded at solid rates, while residential investment contracted 5.1%. Overall, the outturn demonstrates the ongoing resilience of the U.S. economy. Output was up 2.7% on a year-ago basis, stronger than the past business cycle's 2.4% average growth.
The strength in underlying demand has counterbalanced the weakening in labor demand. Job openings fell more than 400K in September to 7.44 million, or the lowest since January 2021. The decline in hiring demand has kept a lid on voluntary separations, as workers feel less confident about their job-switching prospects than they did a few years ago. The quits rate slipped to 1.9% in September, down from its recent peak of 3.0% in late 2021 and early 2022. At the same time, involuntary separations are contained with the layoff rate sitting at 1.2%, below its pre-pandemic trend. Taken together, these data suggest that employers are in a holding pattern. Firms are not hiring new workers robustly, likely due to persistent input cost growth and elevated uncertainty, but they are also not interested in laying off their existing workers, because demand for their goods and services continues to expand.
The cooling in labor market churn has eased the pressure on employers to hike wages and salaries. The Employment Cost Index, which is the Federal Reserve's preferred measure of compensation costs, increased 0.8% in the third quarter, bringing the year-over-year rate to 3.9%. That pace of growth is still much stronger than what prevailed in the business cycle before the pandemic, but it is down from its 5.1% peak in 2022. Layering in solid labor productivity, which we expect to pick up in the third quarter, and the inflationary impulse from labor costs has meaningfully ebbed.
In view of the moderation in employment and labor cost growth, we suspect the Federal Reserve will continue easing monetary policy in the coming months. As discussed in Interest Rate Watch, we look for the FOMC to lower its target range by 25 bps to 4.50%-4.75% at its meeting next week. We suspect the more gradual pace of reduction—the FOMC kicked off the easing cycle with a 50 bps cut in September—will appease members of the Committee who remain concerned about the upside risks to inflation.
This Week's State Of The Economy - What Is Ahead? - 28 June 2024
Wells Fargo Economics & Financial Report / Jul 04, 2024
According to the Federal Reserve\'s preferred gauge, core inflation cooled to its softest pace in more than three years in May against a backdrop of measured consumer spending and still-strong personal income.
This Week's State Of The Economy - What Is Ahead? - 14 April 2023
Wells Fargo Economics & Financial Report / Apr 20, 2023
In March retail sales fell 1.0%, manufacturing production slipped 0.5% and the consumer price index rose a modest 0.1%.
This Week's State Of The Economy - What Is Ahead? - 02 April 2021
Wells Fargo Economics & Financial Report / Apr 08, 2021
Increased vaccinations and an improving public health position led to an easing of restrictions and pickup in activity across the country in March.
This Week's State Of The Economy - What Is Ahead? - 07 April 2023
Wells Fargo Economics & Financial Report / Apr 10, 2023
Employers added jobs at the slowest pace since 2020 in March, job openings fell and an upward trend in initial jobless claims has emerged.
This Week's State Of The Economy - What Is Ahead? - 08 January 2021
Wells Fargo Economics & Financial Report / Jan 12, 2021
The manufacturing sector is showing a great deal of resilience, with the ISM Manufacturing survey exceeding expectations, at 60.7, and factory orders remaining strong.
This Week's State Of The Economy - What Is Ahead? - 27 January 2023
Wells Fargo Economics & Financial Report / Jan 28, 2023
Real GDP expanded at a 2.9% annualized pace in Q4. While beating expectations, the underlying details were not as encouraging. Moreover, the weakening monthly indicator performances to end the year suggest the decelerating trend will continue in Q1.
This Week's State Of The Economy - What Is Ahead? - 18 December 2020
Wells Fargo Economics & Financial Report / Dec 21, 2020
This week marked the first U.S. COVID vaccinations and the imminent rollout of a second vaccine.
This Week's State Of The Economy - What Is Ahead? - 02 July 2020
Wells Fargo Economics & Financial Report / Jul 04, 2020
It was a mildly busy week for foreign economic data and events, while global COVID-19 cases continued to rise.
This Week's State Of The Economy - What Is Ahead? - 23 October 2020
Wells Fargo Economics & Financial Report / Oct 24, 2020
A recent strong report from the National Association of Homebuilders set the tone for another round of strong housing data. The NAHB index rose two points to a record high 85.
This Week's State Of The Economy - What Is Ahead? - 13 September 2024
Wells Fargo Economics & Financial Report / Sep 17, 2024
The core Consumer Price Index (CPI) printed at 0.3% month-over-month in August. This was slightly higher than consensus forecasts and marked the fastest price increase in four months.
