This week was a big week for employment data. On Wednesday, the ADP showed a noticeable slowdown in private job growth for September, adding only 89K jobs, well below the Dow Jones estimate of 160K and marking the third straight month of declines. Most gains were in the services sector, notably in leisure and hospitality. The ADP report is a report of payrolls processed by ADP and does not include government employment.
On Thursday, the Department of Labor reported 207K initial claims for unemployment insurance, a slight increase from the prior week but still under the Dow Jones forecast of 210K. Ahead of a recession, I would expect weekly initial claims for unemployment insurance to rise above 300K.
On Friday, the Bureau of Labor Statistics said total nonfarm payroll employment surged by 336K in September, surpassing the average monthly gain of 267K over the past 12 months and far outpacing the 170K jobs expected by Dow Jones economists. The unemployment rate remained at 3.8%. Job gains were reported in multiple sectors, including leisure and hospitality, government, health care, and professional services. Despite these gains, the labor force participation rate did not change. Average hourly earnings increased by 0.2%, with a yearly gain of 4.2%. The report also revised employment numbers for July and August upward.
The Fed has noted that a tight labor market contributes to a strong economy and could put upward pressure on inflation. Chairman Powell has suggested that below-trend economic growth may be necessary to reach the Fed's 2% inflation target. A robust jobs report suggests that the Fed will probably maintain higher interest rates for longer than expected. “Higher for longer" impacts mortgage rates, business loans, auto loans, and interest rates on credit cards and personal loans, which will ultimately slow the economy.
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