This Week's State Of The Economy - What Is Ahead? - 07 October 2022

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Oct 10, 2022

This Week's State Of The Economy - What Is Ahead? - 07 October 2022

An onslaught of economic indicators arrived this week. To summarize: higher interest rates and inflation appear to be weighing on manufacturing and construction, yet service sector activity remains fairly resilient. Financial markets were largely focused on signs that the labor market is starting to loosen. Notably, stocks rallied early in the week following a surprisingly sharp drop in job openings. According to the latest Job Openings and Labor Turnover Survey (JOLTS), the count of job openings plummeted by 1.1 million vacancies in August. The monthly decline was the sharpest drop since 2020 during the throes of the pandemic.

The JOLTS plunge will come as welcome news to the FOMC. Fed Chair Powell has frequently cited the high number of openings relative to the number of unemployed workers as indicative of a labor market that is too tight. August's plunge in openings is a sign that tighter monetary policy is starting to slow hiring, and possibly the inflation pressures stemming from rapid wage growth. The market reaction to the news was likely owed to the belief that a pivot towards less-hawkish monetary policy could be coming sooner than expected.

Given the steep drop in job openings, Friday’s employment report took on new significance. Payrolls rose by 263K jobs during September, a gain just a shade above market expectations. The monthly improvement reflects a slowing pace of job growth this year, however labor markets remain remarkably tight. The unemployment rate ticked back down to 3.5% during the month, matching a 50-year low. The dip in the jobless rate occurred alongside a solid rise in household employment and only mild decline in the labor force. The labor force participation rate, which is still hovering below prepandemic averages, inched down to 62.3%.




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