Data a Mix of Tricks and Treats

There was a mix of tricks and treats during a busy week of labor, housing and inflation data. Here are the latest headlines:

·      Job Growth Stalls in October

·      Private Sector Job Growth Surges, Wages Moderate

·      JOLTS, Jobless Claims Show Labor Sector Weakness

·      Consumer Inflation Making Progress

·      Big Jump in Pending Home Sales

·      Home Prices Hit Another High

·      Third Quarter GDP Solid but Below Forecasts

Job Growth Stalls in October

The Bureau of Labor Statistics (BLS) reported that there were just 12,000 jobs created in October, which was well below estimates of 113,000. Negative revisions to August and September also shaved 112,000 jobs from those months combined. The unemployment rate held steady at 4.1%, though there’s important rounding information to understand about this, as noted below.

What’s the bottom line? While hurricanes Helene and Milton did have some effect on the report, the BLS noted that they aren’t able to quantify the impact. And there were signs of weakness in the report regardless of the storms.

Not only was the headline job number (which comes from the report’s Business Survey) much lower than forecasts, but the job creation component in the report’s Household Survey showed 368,000 job losses. This latter figure is considered more real-time because it’s derived by calling households, whereas the Business Survey is based on modeling and estimations. The Household Survey also showed that we lost 164,000 full-time and 227,000 part-time jobs last month.

And there’s an important note on the unemployment rate, which did rise materially even though the rounding makes it appear otherwise. September’s unemployment rate was 4.051%, which was rounded to 4.1%. October’s unemployment rate was 4.145%, and while this was also rounded to 4.1%, it still marks a nearly 0.1% (0.094% to be exact) rise.

Private Sector Job Growth Surges, Wages Moderate

October’s private sector job growth hit the highest level since July 2023, per ADP’s Employment Report, which showed that employers added a much larger than expected 233,000 new jobs. In addition, the breadth of job creations was broad based, with only the manufacturing sector shedding jobs. ADP called hiring “robust and broadly resilient” as we head toward the new year.

What’s the bottom line? Despite the strong headline number, small businesses continue to struggle, as those with fewer than 50 employees only added 4,000 jobs. This is compared to 226,000 new jobs added among medium and large companies combined. Annual pay gains also continued to decelerate for both job-stayers (+4.6% from +4.7%) and job changers (+6.2% from +6.7%), reflecting a decline in wage-pressured inflation.

JOLTS, Jobless Claims Show Labor Sector Weakness

The latest Job Openings and Labor Turnover Survey (JOLTS) showed that job openings fell to 7.443 million in August, which was below forecasts and well below the high of 12 million hit in 2022. The quit rate remained at a low 1.9%. A low quit rate suggests there is less poaching from other companies and fewer people feel confident about finding new employment.

Regarding unemployment, 216,000 Initial Jobless Claims were filed in the latest week, marking a decline of 12,000 from the previous week. Plus, 1.862 million people continued to receive benefits after filing their initial claim. Continuing Claims have now topped 1.8 million for 21 consecutive weeks.

What’s the bottom line? We continue to see less hiring, fewer people quitting their jobs, and elevated continuing unemployment claims. Labor sector reports are crucial to the Fed as they weigh monetary policy and further rate cuts, given their dual mandate of price stability and maximum employment.

Consumer Inflation Making Progress

September’s Personal Consumption Expenditures (PCE) showed that headline inflation rose 0.2% from August, while the year-over-year reading fell from 2.3% to 2.1%. Core PCE, the Fed’s preferred method which strips out volatile food and energy prices, rose 0.3% monthly. The year-over-year reading held steady at 2.7%, remaining near the lowest level in over three years.

What’s the bottom line? The trend of monthly Core PCE readings have been favorable and in line with what the Fed wants to see. In fact, if we annualize the last three months of readings, Core PCE would be 2.32%, which is closer to the Fed’s 2% target. Plus, shelter costs remain the largest contributor to inflation, and they’re still overstated due to the lag effect. Inflation would be even lower if more real-time shelter costs were better reflected in the reporting.

Big Jump in Pending Home Sales

Pending Home Sales, which are signed contracts on existing homes, rose 7.4% from August to September, hitting their highest level since March. The National Association of REALTORS® (NAR) also reported that sales were 2.6% higher than they were a year earlier.

What’s the bottom line? “Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” said NAR Chief Economist Lawrence Yun. “Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.”

Home Prices Hit Another High

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.3% from July to August after seasonal adjustment, helping home values reach an all-time high for the fifteenth straight month. Home values in August were also 4.2% higher than a year earlier, following a 4.8% gain in July.

The Federal Housing Finance Agency’s (FHFA) House Price Index also showed that home prices rose 0.3% from July to August, and they were 4.2% higher when compared to the same time last year.

What’s the bottom line? While home prices are continuing to appreciate, the pace is slower than earlier in the year. However, homeownership continues to provide a significant wealth creation opportunity. And if mortgage rates come back down, this could drive demand and potentially accelerate home price gains even further.

Third Quarter GDP Solid but Below Forecasts

The U.S. economy grew by 2.8% in the third quarter per the Bureau of Economic Analysis, which was a solid but somewhat disappointing Gross Domestic Product reading given that forecasts expected higher growth. By comparison, we saw 3% and 1.6% growth in the second and first quarters of this year.

What’s the bottom line? Economic activity in the third quarter was driven by consumer spending, exports and federal government spending. Note that this report was an advanced estimate and the data is subject to revisions when the second and final readings are released on November 27 and December 20, respectively.