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? - 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? - 08 May 2020
Wells Fargo Economics & Financial Report / May 15, 2020
April nonfarm payrolls confirmed what we already knew—the labor market is collapsing. By the survey week of April 12, net employment had fallen by 20,500,000 jobs.
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 August 2021
Wells Fargo Economics & Financial Report / Aug 30, 2021
In other economic news, output continues to ramp up across the U.S., even as the resurgence in COVID cases is leading to some pullback in consumer engagement.
This Week's State Of The Economy - What Is Ahead? - 01 November 2024
Wells Fargo Economics & Financial Report / Nov 06, 2024
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%. A 25 bps rate cut at next week\'s FOMC meeting remains highly likely.
This Week's State Of The Economy - What Is Ahead? - 26 July 2024
Wells Fargo Economics & Financial Report / Jul 30, 2024
Economic growth defied expectations in the second quarter. Real GDP expanded at a 2.8% annualized rate, a sizable acceleration from 1.4% in Q1.
This Week's State Of The Economy - What Is Ahead? - 11 February 2022
Wells Fargo Economics & Financial Report / Feb 14, 2022
Deep thought for the week, if a tree falls in the forest, or an Olympics occurs, and no one is there to hear it or see it, did it really occur?
This Week's State Of The Economy - What Is Ahead? - 01 March 2024
Wells Fargo Economics & Financial Report / Mar 05, 2024
Economic data were downbeat this week, as downward revisions took some of the shine out of the marquee headline numbers. Despite the somewhat weak start to Q1, economic growth continues to trek along.
This Week's State Of The Economy - What Is Ahead? - 09 December 2022
Wells Fargo Economics & Financial Report / Dec 15, 2022
Various price metrics released this week showed some continued signs of inflation cooling, but gradually rather than rapidly.
This Week's State Of The Economy - What Is Ahead? - 02 December 2022
Wells Fargo Economics & Financial Report / Dec 08, 2022
Total payrolls rose by 263K in November, with the unemployment rate holding steady at 3.7% and average hourly earning rising by 0.6%.
