The third quarter ended with a bang. Nonfarm payrolls blew past expectations in September, rising 254K over the month. Upward revisions to the prior two months' data (+72K) sweetened the monthly gain and bucked the trend decline in hiring. Incorporating revisions, overall job growth averaged 186K during the third quarter (chart), a noticeable step down from the first quarter's 267K average growth, but a step up from the second quarter's 147K average. The separate survey of households shows employment rising 430K and unemployment falling 281K in September, leading the unemployment rate to unexpectedly tick down a tenth to 4.1%.
Somewhat tempering the headline beat is the concentration of payroll growth. The sectors that have led the charge in recent months—leisure & hospitality, healthcare and government—again posted strong gains in September and accounted for 71% of the month's job growth despite only accounting for roughly 40% of total employment. The diffusion index, a measurement of hiring's breadth across industries, ticked up to 52.9 on a three-month moving average basis in September but remains below its pre-pandemic average of 58.8 during 2019.
Still, the rebound in job growth supports the view that demand for new workers has decelerated rather than deteriorated. At the same time, employers remain reluctant to let go of their existing workers. The layoff and discharge rate ticked down to 1.0% in August, running below its pre-pandemic norm of 1.2%. Initial claims for unemployment insurance have also ebbed lower since the summer and were sitting at a historically low 225K in the week ended Sept. 28. Overall, this week's jobs data signal that the labor market remains solid despite the second quarter's moderation.
In remarks on Monday, Chair Powell maintained that the FOMC does not believe that it needs “to see further cooling in labor market conditions to achieve 2% inflation.” The comment suggests that cooling wage growth and firming labor productivity growth have helped to quell the labor market's inflationary impulse, which adds credence to the Committee's decision to opt for a larger-than-expected 50 bps rate cut in September to support overall job growth. That said, Powell underscored that monetary policy is “not on any preset course” and emphasized the median forecast in the latest Summary of Economic Projections, which implies a 25 bps cut at each of the two remaining meetings this year (Nov. 7 and Dec. 18). This week's data favor a 25 bps cut in November.
Financial markets interpreted Chair Powell's speech as hawkish, evident in the roughly 7 bps pullback in fed funds rate futures for December between last week's close and Monday evening. September's jobs report only added fuel to the correction; average hourly earnings growth came in stronger than expected, rising 0.1 percentage points to 4.0% year-over-year (chart). The outturn marks the second straight month that annual wage growth has strengthened and likely raises some concern about the current downward trend in inflation. As of this writing, market pricing implies 57 bps of rate cuts by the end of 2024, nearly 20 bps lower than last Friday.
This Week's State Of The Economy - What Is Ahead? - 20 May 2022
Wells Fargo Economics & Financial Report / May 29, 2022
U.S. retail sales topped expectations in April, while industrial production also grew more rapidly than economists expected. Data on housing starts, home sales and homebuilder sentiment, however, showed tentative signs of cooling.
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? - 25 October 2024
Wells Fargo Economics & Financial Report / Oct 31, 2024
The housing sector was in focus this week. During September, existing homes sales remained in a slump and declined to a fresh cycle low, while new home sales bucked the trend and rose solidly.
This Week's State Of The Economy - What Is Ahead? - 04 March 2022
Wells Fargo Economics & Financial Report / Mar 08, 2022
February\'s employment data showed the economy had strong momentum, but that seems pretty dated now with Russia\'s invasion of Ukraine and the Fed\'s shift to a more hawkish tone on monetary policy.
This Week's State Of The Economy - What Is Ahead? - 24 May 2024
Wells Fargo Economics & Financial Report / May 29, 2024
Homebuying retreated in April following a leg up in mortgage rates. Meanwhile, durable goods orders surprised to the upside, suggesting the manufacturing industry is on better footing.
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? - 28 April 2023
Wells Fargo Economics & Financial Report / May 03, 2023
U.S. Economy expands but at a weak rate. Regional bank failures cause corporate investment spreads to widen again. House Republicans pass bills that affect the debt ceiling.
This Week's State Of The Economy - What Is Ahead? - 21 October 2020
Wells Fargo Economics & Financial Report / Oct 21, 2020
Mobility is continuing to trickle lower in several major developed market economies. The U.K., France, Italy and Canada have all seen some further modest declines in retail/recreation visits.
This Week's State Of The Economy - What Is Ahead? - 22 April 2022
Wells Fargo Economics & Financial Report / Apr 27, 2022
I’ll wish you a Happy Earth Day anyway. Don’t expect a card this year. While the Earth continues to thankfully revolve at a steady rate, rising mortgage rates appear to be slowing residential activity
This Week's State Of The Economy - What Is Ahead? - 10 September 2020
Wells Fargo Economics & Financial Report / Sep 12, 2020
Although the recovery from the COVID recession is still far from over, the U.S. economy is bouncing back faster than many expected.