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? - 19 May 2023
Wells Fargo Economics & Financial Report / May 23, 2023
Economic data continue to suggest the U.S. economy is only gradually losing momentum. Consumers continue to spend, and industrial and housing activity are seeing some stabilization.
This Week's State Of The Economy - What Is Ahead? - 04 November 2022
Wells Fargo Economics & Financial Report / Nov 07, 2022
Employers continued to add jobs at a steady clip in October, demonstrating the labor market remains tight and the FOMC will continue to tighten policy.
This Week's State Of The Economy - What Is Ahead? - 03 September 2021
Wells Fargo Economics & Financial Report / Sep 10, 2021
e move into the Labor Day weekend celebrating the 235K jobs added in August, while simultaneously lamenting that it was about half a million jobs short of expectations.
This Week's State Of The Economy - What Is Ahead? - 14 October 2022
Wells Fargo Economics & Financial Report / Oct 18, 2022
Highly anticipated Consumer Price Index report surprised to the upside. Headline CPI rose 0.4% in September, and core CPI increased 0.6%.
This Week's State Of The Economy - What Is Ahead? - 27 March 2020
Wells Fargo Economics & Financial Report / Mar 28, 2020
The U.S. surpassed Italy and China with the most confirmed cases of COVID-19. Europe is still the center of the storm, with the total cases in Europe’s five largest economies topping 230,000.
November 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Nov 12, 2020
U.S. gross domestic product (GDP) grew 7.4 percent, or $1.3 trillion in Q3, adjusted for inflation.
This Week's State Of The Economy - What Is Ahead? - 06 November 2020
Wells Fargo Economics & Financial Report / Nov 10, 2020
As of this writing, the outcome of the U.S. presidential election is undecided. Joe Biden, however, appears likely to become president based off of his growing lead in several key states.
This Week's State Of The Economy - What Is Ahead? - 26 April 2024
Wells Fargo Economics & Financial Report / Apr 29, 2024
We got our first look at Q1 GDP, which downshifted to a 1.6% annualized pace and was accompanied by a hot core PCE deflator reading.
This Week's State Of The Economy - What Is Ahead? - 25 February 2022
Wells Fargo Economics & Financial Report / Feb 27, 2022
What a crazy week. It’s hard to worry about something as relatively unimportant as economic trends when one thinks about what folks in Ukraine are enduring, but economies are nonetheless impacted.
This Week's State Of The Economy - What Is Ahead? - 25 November 2020
Wells Fargo Economics & Financial Report / Nov 28, 2020
It may be a holiday-shortened week, but there have been as many developments and economic indicators packed into three days as we can recall seeing in any other week this year.
