Evening Brief – 10.06.23
Two Out of Three Aint Bad
The focus for the markets on Friday was whether wage and job growth would continue to slow, and whether the unemployment rate would remain stable at 3.8%.
Two of those three things happened. The third factor, a slowdown in job growth, did not materialize. However, it could have been the product of the same unresolved seasonality seen in initial jobless claims in the previous month.
Nonfarm payrolls were 336,000 in September, the highest level since January. Both July and August were upwardly revised by +79,000 and +40,000, respectively. This is the first time this year that we have seen such upward revisions. As a result, the three-month average increased to 266,000 from 193,000, the highest level since March.
The unemployment rate stayed at 3.8%, the highest level since February 2022. The labor force participation rate was constant at 62.8%, compared with 63.4% in February 2020.
The private sector added 263,000 jobs. Government employment increased by 73,000. Only January and July were higher in the previous year.
The alternative, more volatile gauge in the household report, on the other hand, increased by only 86,000 jobs. In this report, the year-over-year increase is 1.7%.
This month was a tale of two quite different reports. The establishment report was good, both in terms of headline jobs and most of its internals, which included nearly all of the top job sectors. Food and beverage establishments have finally surpassed their pre-pandemic levels.
Although aggregate hours and pay growth continued to decelerate, at +0.4% this month, the latter almost definitely topped the inflation rate, implying that Americans had extra cash to spend this month.
The thorn in the flesh was that government positions accounted for a disproportionate share of the total increase. This could explain the large drop in initial unemployment claims last month, which could be attributed to a shift in post-pandemic versus pre-pandemic tendencies.
The household report, meanwhile, was underwhelming, with only 86,000 new positions added. Both the unemployment and underemployment rates were close to or above last month’s highs.
But you have to question how concerned the Federal Reserve will be if the labor market does not soften as expected.
In that instance, the central bank may be satisfied with the fact that wages are not rising rapidly. Nonetheless, it is unlikely to stop them from hiking interest rates again. In fact, the chances of a rate hike before the end of the year rose to 43% today from 36% before the release.