Trend watch and what’s new this week
The effects of Hurricane Ian is continuing to ripple through some of the activity-based data (slides 5 and 6). For instance, air passenger counts rebounded, up 1.1% WoW, with the daily average of 2.09 million. Also, restaurant bookings recovered, up +0.4% compared to pre-pandemic levels from -0.4% in the prior week.
Conversely, hotel occupancy fell following the storms, though remains above the pre-pandemic 5-year average. The Rosh Hashanah holiday also impacted business travel last week. Again, we expect to see more impact to economic data from Hurricane Ian in the weeks to come.
September posts solid job gains and unemployment rate dipped
The U.S. payrolls increased in September by 263,000, roughly in-line with the consensus of 250,000. The six-month average slipped to 360,300, the slowest six-month pace since the reopening period in 2020. On slide 7, the unemployment rate fell to 3.5%, back down to the low of this cycle, along with a decrease in the labor force participation rate.
Labor conditions are cooling. The industry results were solid, albeit less than the prior trend. Three major industry groups lost jobs during the month, which hasn’t happened since November 2020 (slide 7).
On slide 8, average hourly earnings grew 5.0% from a year ago, the slowest year-over-year pace in nine months, but is well-above the pre-pandemic rate of 3.0%. The pace for rank & file workers is also tapering.
Supplementary employment data mixed
On slide 9, we also revisited temporary staffing. Staffing levels have rebounded above the pre-pandemic all-time high, and underscore continued strong demand and employment trends. It’s particularly notable that it occurred outside of the holiday season. In a separate report, the number of temp workers reached an all-time high.
On slide 10, the number of job openings drop 10% in August. Within the same report, however, food service quit rate hit new all-time high.
Manufacturing data mixed; inflation appeared to be retreating
Two separate gauges showed a mixed view of manufacturing. The Institute for Supply Management (ISM) Manufacturing Index (slide 11) fell to a reading of 50.9 in September from 52.8. Within the components, price paid continued its sharp decline, down for the sixth month in a row, which suggests that inflation has already peaked within manufacturing.
Meanwhile, S&P Global’s U.S. Manufacturing Index for September was revised upward 52.0 from the preliminary reading of 51.8 and up from 51.5 in August. A reading above 50 signifies an increase in manufacturing activity for the month.
Services data also mixed
The Institute for Supply Management (ISM) Services Index (slide 12) dipped to a reading of 56.7 in September from 56.9 in August.
But it was the 28th consecutive month of expansion. The new orders component fell but are above the pre-pandemic level. Meanwhile, the price paid component dropped for the fifth straight month; however, while it suggests that inflation has already peaked, it remains well-above pre-pandemic levels.
Meanwhile, S&P Global’s U.S. Services Index rose to a reading of 49.3 in September, which still signifies a contraction in activity, from 43.7 in August.
Used car prices quickly recoiling
On slide 13, we revisit the price index of used vehicles, which has fallen in in seven of the past eight months. In September, prices fell on a MoM and YoY basis. Prices have dropped 13.5% since January ’22 with the luxury car segment getting hit the worst.
First, our thoughts, prayers, and support go out to the people of Florida, South Carolina, and North Carolina, who were devastated by Hurricane Ian. (The Truist Foundation has donated more than $1.25 million for hurricane relief.)
As we mentioned previously, the economic impact of major hurricanes tends to be short-term – inflicting property damage and negatively impact operations for companies immediately. Yet, as the weeks pass, the rebuilding process tends to outpace the losses. We’re hopeful that Hurricane Ian’s economic impact will fit in the typical storm rebuilding cycle, which is generally a positive for growth over several quarters.
With respect to the labor market, welcome back to Bizarro World, where markets twist logic in a way that transforms “good” into “bad” (for markets). In today’s episode, the labor market conditions remain solid, which is good for individuals insofar as more people have jobs.
The solid labor market conditions are more than simply the headline jobs number or even the drop in the unemployment rate. In addition to the aforementioned strength within temp help, weekly initial jobless claims continue to hover near a 50-year low. Also, the quit rate for food services workers hit a new 20-year high.
Thus, today’s jobs report is bad for markets since solid economic figures nudge prices higher (aka inflation), keeping the Federal Reserve (Fed) in a box. Given inflationary pressures aren’t fading fast enough, the Fed can’t relax its aggressive stance against inflation just yet. The jobs report likely bolsters the case for another supersized three-quarter point (0.75%) rate hike at the next Fed meeting on November 2 and dashes the hopes of a near-term pivot.
Ultimately for markets, the prospects of higher interest rates increase the likelihood of a recession or at the very least a further slowdown in economic activity. We agree.
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