Cautious Optimism: Unraveling the Week of October 2, 2023 Strong Jobs but Mixed Signals

As the calendar turned from September to October, the financial world witnessed a flurry of economic data and reports that provided valuable insights into the state of the labor market, job creation, and the housing sector. This week's review delves into the significant events and findings that dominated the headlines during the week of October 2, 2023.

Soaring September Job Growth Defies Expectations

The Bureau of Labor Statistics (BLS) unveiled a remarkable jobs report for September, revealing the creation of a staggering 336,000 jobs. This number nearly doubled the initial forecasts and marked the highest job growth since January. Additionally, revisions to the July and August data added a significant 119,000 jobs, primarily in the government sector. However, despite this impressive headline figure, the unemployment rate remained relatively stable at 3.8%, just slightly above expectations of a drop to 3.7%.

Key Takeaways:

• Two Reports, Two Stories: A critical distinction exists between the Business Survey, which contributes to the headline job number, and the Household Survey, which generates the Unemployment Rate. The latter is considered more real-time and presented a contrasting story. It showed only 86,000 job creations, alongside notable increases in part-time workers and multiple job holders, hinting at underlying economic softness.

What Lies Ahead: The strong headline job growth has raised concerns about the Federal Reserve's next move, as they've been raising the Fed Funds Rate to curb inflation. Despite some mixed signals, the risk of another rate hike looms large in the upcoming November meeting.

Private Payrolls at Weakest Pace in Almost Three Years

ADP's Employment Report for September painted a different picture. It reported private payrolls with a much weaker performance than expected, showcasing only 89,000 job creations. This marked the slowest pace of growth since January 2021. Large businesses with 500+ employees suffered, shedding 83,000 jobs. Notably, leisure and hospitality showed strength, but this was counterbalanced by losses in other sectors like manufacturing, trade, transportation, and professional/business services.

• Declining Wages: Economist Nela Richardson highlighted a concerning trend in wage growth, with annual pay for job stayers increasing by 5.9% and job changers seeing an average increase of 9.0%. These figures reflect a significant cooling compared to the highs of the previous year.

Economic Implications: The decline in job creation and wages hints at economic uncertainties. Lower wage-pressured inflation becomes a factor to consider in this equation

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Job Openings a Surprise "JOLT" Higher

The Job Openings and Labor Turnover Survey (JOLTS) delivered an unexpected surprise by revealing an increase in job openings from 8.92 million in July to 9.61 million in August. This counteracted months of declining job openings and was primarily driven by professional and business service positions.

Key Takeaways:

• Overstated Figures: While the monthly increase in job openings is encouraging, a closer look reveals that job openings are down nearly 6% compared to the previous year. Remote work has led to job listings being posted in multiple states, which results in overcounting in the JOLTS total.

Fed's Perspective: The Federal Reserve closely watches this report for signs of labor sector weaknesses, and these conflicting figures add complexity to their decision-making process.

Tame Unemployment Claims a Contrast to Job Cuts

Initial Jobless Claims inched up by 2,000 to 207,000 in the latest week. The stability of first-time filings near eight-month lows suggests that employers are retaining workers. Continuing Claims fell by 1,000, reaching their lowest level since January, with 1.664 million people still receiving benefits.

Key Takeaways:

• Mixed Signals: The low level of unemployment claims contrasts with the Job Cuts report from Challenger, Gray & Christmas, which revealed the highest job cuts year-to-date since 2009, except for the exceptional circumstances of 2020.

Fed's Response: The Federal Reserve will need to navigate these mixed signals carefully as they approach their upcoming November meeting.

More Record Highs for Home Prices

CoreLogic's Home Price Index reported a 0.3% increase in home prices from July to August, marking a new all-time high for the fourth consecutive month. CoreLogic forecasts a continued rise in home prices, albeit on the conservative side historically, with an anticipated 3.4% increase in the coming year. This index is on pace for over 8% appreciation in 2023, based on the monthly readings.

Black Knight also corroborated these findings, reporting a 0.7% rise in national home values in August, with a similarly robust trend of setting new all-time highs.

Key Takeaways:

• Real Estate Wealth: These reports underscore the opportunities for building wealth through homeownership, showcasing the continued strength and growth in real estate values.

As we analyze the data and economic reports from the week of October 2, 2023, it's evident that while certain economic indicators remain robust, such as the headline job growth figure, a closer look reveals nuances and complexities that warrant careful consideration, especially for the Federal Reserve as it navigates monetary policy in the coming months. Additionally, the housing market continues to exhibit resilience and potential for homeowners to build wealth through real estate investments.