Weekly Economic Trends and Indicators

The Headline:

On Friday, the Bureau of Labor Statistics (BLS) reported that nonfarm payroll employment increased by 150,000 in October. This was somewhat below expectations and well below the average monthly increase over the last twelve months (258,000). The previous two months of job gains were also revised downward by a combined 101,000 jobs.

The Details:

Continuing the trend of the last several months, job gains were heavily concentrated in health care and government, adding 58,000 and 51,000 jobs respectively. Manufacturing employment decreased by 35,000 in October, with nearly all of the net manufacturing job losses in motor vehicles and parts (33,000). Most of that was due to the strikes that were taking place during the data collection week. It is expected that will reverse next month now that an agreement has been reached.

The Context:

We may finally be at the kind of turning point in the trajectory of the economy that we have been anticipating. This is not to say that inflation is over or that recession fears can be put to rest. However, the broader markets were pleased with this week’s data.

On Wednesday, the Federal Reserve kept its key policy interest rate unchanged as was widely expected. In the press conference that followed, reporters asked essentially the same question in a number of different ways: “Is the Fed done with the rate hikes?” Fed Chair Jerome Powell did not directly answer this, but the tone of his remarks sent a very clear message that they are not satisfied with where we are on inflation, and thus the door is still open. Yet at the same time, Powell emphasized that the committee would be closely watching incoming data.

The first big data point after the Fed meeting was Friday’s labor market report which many analysts characterized as a “Goldilocks” report. Not too hot, not too cold, but just right. It has been a while since we have been able to say that, and the markets rallied on the implications. Both bonds and stocks were sharply higher, with the major indexes finishing with one of their best weeks of the year. Chair Powell’s words notwithstanding, the market thinks the Fed is done.

With fourth quarter GDP expected to be lower (though still positive) and with job growth off its breakneck pace, this could be the slowing we have been looking for. If this really is a transition to a more sustainable pace of economic growth, it would be the best sign of a “soft landing” we have seen for some time.

Even so, the slowdown is uneven, with manufacturing suffering the effects of higher interest rates more than sectors like health care and government. Given manufacturing’s importance to the overall economy, there remains a risk that “higher for longer” rates could add significant headwinds to an economy at its most vulnerable point.

Next week: Local labor market update