This week delivered an onslaught of economic indicators that provided a first glimpse of economic activity during Q4. In short, the remarkable strength on display during Q3 looks to be fading as the year begins to wind to a close. The labor market was front and center. After September's surprising surge, nonfarm payrolls advanced at a more moderate pace in October, rising by 150,000 net new jobs during the month. Strike activity, in particular the UAW strike, looks to have suppressed overall hiring during the month. Through the monthly volatility, however, a trend of labor market cooling remains in place. Total payrolls rose 1.9% year-over-year in October, the slowest annual change since early 2021. The number of payrolls added over the prior two months was also revised down by a hefty 101,000.
Although payroll growth is easing, the labor market remains relatively tight. The unemployment rate inched up to 3.9% in October, slightly higher than the cycle low of 3.4% first hit in January 2023, butstill low compared to historical averages. The slight upturn in the jobless rate this year reflects labor supply and demand becoming more balanced. The labor force participation rate slipped a tick to 62.7% in October but is still 0.5 percentage points higher than a year ago. The improvement in labor supply amid a cooler pace of hiring has yielded a more moderate pace of wage growth. Average hourly earnings rose 0.2% in October, the slowest monthly pace in more than a year.
A host of other indicators released this week provided additional evidence that the labor market is moving back to pre-pandemic form. During September, the count of job openings as measured by the Job Openings and Labor Turnover Survey (JOLTS) edged up to 9.55 million. While the number of job vacancies remains highly elevated, both the hiring and quits rate—which were both unchanged during the month at 3.7% and 2.3%, respectively—more or less have returned to 2019 averages. What's more, the Employment Cost Index (ECI) rose 1.1% in Q3, a touch higher than the consensus. Yet, the 4.3% not seasonally adjusted ECI figure marks the lowest reading since 2021. On top of that, the Q3 nonfarm productivity report published this week showed that unit labor costs declined at a 0.8% annualized pace in Q3, solidifying a downward trend since 2022. The decline in labor unit costs has occurred against a backdrop of improving productivity. Overall nonfarm labor productivity grew at a robust 4.7% annualized rate in the third quarter, bringing the four-quarter moving average of growth in employee output per hour back to pre-COVID norms.
A pick-up in productivity alongside slowing nominal wage growth is an encouraging sign that inflation is still on the path back to the Federal Reserve's 2% target. As we write in the Interest Rate Watchsection, the FOMC unanimously agreed to keep its target range for the federal funds rate unchanged at 5.25%-5.50% at the conclusion of the Nov. 1 meeting this week. Although monetary policy is likely to remain restrictive in the months ahead, additional rate hikes are not likely to be forthcoming, given that the labor market and inflation both look to be charting a course for calmer waters.
This Week's State Of The Economy - What Is Ahead? - 12 April 2024
Wells Fargo Economics & Financial Report / Apr 18, 2024
The March consumer price data dominated the economic discussion this week and are the latest to support that the timing and degree of Fed easing will be later and smaller than many of us previously expected.
This Week's State Of The Economy - What Is Ahead? - 01 May 2020
Wells Fargo Economics & Financial Report / May 04, 2020
U.S. GDP declined at an annualized rate of 4.8% in the first quarter, only a hint of what is to come in the second quarter.
This Week's State Of The Economy - What Is Ahead? - 24 February 2023
Wells Fargo Economics & Financial Report / Feb 28, 2023
Existing home sales declined 0.7% in January, while new home sales leaped 7.2%. Real personal spending shot higher in January, and solid growth in discretionary spending suggests continued consumer resilience.
This Week's State Of The Economy - What Is Ahead? - 17 January 2020
Wells Fargo Economics & Financial Report / Jan 18, 2020
Mild weather helped housing starts surge 16.9% in December to a 1.61 million-unit pace, the highest in 13 years. Manufacturing surveys from the New York Fed and Philadelphia Fed both rose more than expected in December.
This Week's State Of The Economy - What Is Ahead? - 16 August 2019
Wells Fargo Economics & Financial Report / Aug 17, 2019
Markets gyrated this week as the spread between the ten- and two-year Treasury\'s turned negative for the first time since 2007. Financial markets seem to expect that the sharp slowdown in growth overseas will soon spread to the United States.
This Week's State Of The Economy - What Is Ahead? - 09 June 2023
Wells Fargo Economics & Financial Report / Jun 14, 2023
An unexpected spike in jobless claims is a sign that cracks are forming in the labor market. Higher mortgage rates look to be hindering a housing market rebound.
This Week's State Of The Economy - What Is Ahead? - 20 November 2020
Wells Fargo Economics & Financial Report / Nov 24, 2020
The international economic news over the past week has been somewhat mixed. On the positive side, China’s October data showed ongoing growth in manufacturing and firming retail and service sector activity.
How Long Can US Businesses Remain Shut Down?
Wells Fargo Economics & Financial Report / Apr 29, 2020
The sudden stop in economic activity caused by the COVID-19 pandemic means that many businesses will need to rely on their cash reserves to survive the next few months.
This Week's State Of The Economy - What Is Ahead? - 23 February 2024
Wells Fargo Economics & Financial Report / Feb 27, 2024
Stronger-than-expected inflation, underpinned by the mildly hawkish minutes from the January FOMC meeting, drove a move higher in mortgage rates.
This Week's State Of The Economy - What Is Ahead? - 11 June 2021
Wells Fargo Economics & Financial Report / Jun 26, 2021
Okay, so I’ve gotten about half a dozen calls since Wednesday asking if I saw the May CPI numbers that came out this week.
