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Once again, the lead up to the monthly Labor Department job report reminds us that it takes more than one report to tell a story. First there was the Job Openings and Labor Turnover Survey (JOLTS) report revealing an increase in job openings but also fewer people leaving current jobs which pulled the quits rate to the lowest level since 2020. A falling quits rate suggests people are less confident in the labor market. Second came the ADP Employment survey, released two days before the government’s report, showing a gain of 89,000 jobs added in September. This was half the number of jobs added in the previous month and the smallest monthly increase since early 2021. These two reports led the markets to expect a weak Labor Department report, which turned out to be wrong.
According to the official government job report, the U.S. added 336,000 jobs in September, much higher than the expected gain of 170,000 jobs and almost four times more than the ADP survey. The two-month revision added 119,000 jobs. Most of the jobs added were in the leisure and hospitality sector, followed by a jump in health and education services. Only temporary help and information services lost jobs. The key metrics in the report were stable. The labor force participation rate remained strong at 62.8, the unemployment rate stayed at 3.8% for the second month in a row and year-over-year earnings fell a tenth of a percent to 4.2%. Economists are suggesting the likely scenario for what is happening is that those who had not been working but living off savings are coming back to work without demanding a big increase in pay.
Key Indicators this Week
ISM – The manufacturing sector is trying to gain ground but remains in official contraction territory. The ISM Manufacturing index rose to 49 in October, the highest reading since October 2022 but still below 50 for 11 months. A reading below 50 signifies contraction and above 50 is expansion. Employment and new orders both increased more than two points with employment moving above 50 for the first time in four months. Falling commodity prices are helping some industries keep prices down but it is not clear if the cost savings will be passed to consumers. Five of the 16 industries expanded activity in September, led by textiles and food and beverage. Furniture, printing and paper products industries reported shrinking.
Market Crumble – October began on a rocky start. The Dow Industrial Average index gave up its year-to-date gains, the 10-year Treasury yield rose to 4.80%, the traditional yield curve narrowed 12 basis points in two days to -35 basis points, and the 30-year mortgage rate hit 8%. It felt as if the financial markets finally got on board with the Fed’s strategy and decided to do some of the central bank’s work. The sell-off was spurred by Federal Reserve officials reiterating the plan to keep rates higher for longer, strong job gains, and a surprise increase in job openings. Yields moved higher because the economy continues to show strength, giving the Fed more fuel to raise interest rates, which in turn scares equity investors about future earnings. By the end of the week, however, stock prices moved higher and bond yields lower. Whether or not it is just traders playing the financial markets like they are Vegas, yields and stock prices appear to be closing the week on a more stable footing and embracing the strong labor market until next week’s inflation reports.
Note: Behind the Numbers will not be published next week. The report will resume on
October 20.
Sarina Freedland – Senior Investment Officer
Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.
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