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? - 23 April 2021
Wells Fargo Economics & Financial Report / Apr 26, 2021
This week\'s lighter economic calendar allowed forecasters more time to assess the implications from the prior week\'s blowout retail sales report.
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? - 20 August 2021
Wells Fargo Economics & Financial Report / Aug 24, 2021
The Wells Fargo Economics team notes in the Commentary that new COVID cases in New Zealand disrupted the Reserve Bank of New Zealand\'s plan to tighten monetary policy this week.
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? - 18 October 2024
Wells Fargo Economics & Financial Report / Oct 21, 2024
Retail sales came in stronger than expected in September, industrial production was weaker than expected and residential construction softened.
This Week's State Of The Economy - What Is Ahead? - 02 September 2022
Wells Fargo Economics & Financial Report / Sep 05, 2022
More job seekers also lifted the participation rate to 62.4% and thus easing some tightness in the job market even as payrolls expanded.
This Week's State Of The Economy - What Is Ahead? - 31 January 2020
Wells Fargo Economics & Financial Report / Feb 01, 2020
Mexico’s economy has slowed notably over the last year, with the economy contracting again in Q4, indicating a full-year contraction for 2019.
This Week's State Of The Economy - What Is Ahead? - 09 April 2020
Wells Fargo Economics & Financial Report / Apr 10, 2020
The Federal Reserve announced a series of measures this morning that are intended to assist households, businesses and state & local governments as they cope with the economic fallout of the COVID-19 outbreak.
This Week's State Of The Economy - What Is Ahead? - 22 May 2020
Wells Fargo Economics & Financial Report / May 25, 2020
The re-opening of the country is getting underway, with all 50 states starting to roll back restrictions.
This Week's State Of The Economy - What Is Ahead? - 21 April 2023
Wells Fargo Economics & Financial Report / Apr 26, 2023
The Leading Economic Index (“LEI”) continued to flash contraction as early signs of labor market weakening are starting to emerge. Meanwhile, a batch of housing data confirmed that a full-fledged housing market recovery is still far off.
