The Week of October 30, 2023 in Review: Labor Market, Home Prices, and Fed Rates

As the final week of October 2023 unfolded, the economic landscape presented a mix of surprises and challenges. From labor market struggles to the housing sector's resilience, topped off with the ever-attentive gaze on Federal Reserve rate decisions, it was a week that captured the intricacies of our economic terrain. Here's a comprehensive review of the key events:

Lower Job Numbers Closer to Real Picture

The Bureau of Labor Statistics (BLS) reported that there were 150,000 jobs created in October, falling short of the 180,000 forecasted, and marking the lowest monthly job creation since June. Furthermore, revisions to August and September data saw 101,000 jobs being subtracted from those months combined. The unemployment rate inched up from 3.8% to 3.9%.

• The Jobs Report consists of two components: the Business Survey and the Household Survey. The former, which contributes to the headline job numbers, relies heavily on modeling and estimations. The latter, which determines the unemployment rate, is considered more real-time as it's derived from household interviews.

• A significant factor behind the reported job gains in October was the birth/death model, an estimation of new business creation relative to closed businesses. It added 412,000 jobs, raising questions about its accuracy in the current economic climate.

• The Household Survey, in contrast, revealed a less optimistic story with 348,000 job losses in October.

• A decline in average weekly hours worked, totaling half an hour less on average since the beginning of the year, points to potential underlying job losses.

Private Payrolls Below Expectations

The ADP Employment Report for October showed private payrolls to be weaker than anticipated, with only 113,000 jobs added. Pay growth reached its slowest pace in two years. Most of the job growth occurred in service-providing industries, while goods-producing companies added a mere 6,000 jobs.

• Nela Richardson, chief economist for ADP, noted that while the labor market has slowed, it remains strong enough to support consumer spending.

• Wage growth, which had seen substantial post-pandemic increases, has now cooled significantly.

• Annual pay for job stayers increased by 5.7%, and job changers saw an average increase of 8.4%, reflecting a moderation in wage-pressured inflation.

"JOLT" Higher for Job Openings

The Job Openings and Labor Turnover Survey (JOLTS) for September showed an increase in job openings from 9.5 million in August to 9.55 million. However, the hiring rate remained stagnant at 3.7%, the lowest since pandemic-related shutdowns. The quit rate also stayed at 2.3%, indicating limited employer efforts to entice workers with better offers.

• Despite the monthly rise in job openings, they were down by 1.3 million compared to the same period the previous year.

• The increase in remote work has led to job listings being posted in multiple states, potentially causing an overcount in the JOLTS total.

• The report suggests that the labor market may not be as robust as headline numbers imply.

Continuing Jobless Claims Reach 6-Month High

Initial Jobless Claims increased by 5,000 in the latest week, with 217,000 people filing for unemployment benefits for the first time. More significantly, Continuing Claims surged by 35,000, reaching their highest level in six months at 1.82 million.

• Initial Jobless Claims, while still relatively low, have been on the rise for the past two weeks, reaching highs not seen since early September.

• Continuing Claims have also increased for seven consecutive weeks, suggesting challenges in finding employment once individuals are let go.

Is the Fed Done with Rate Hikes?

After eleven rate hikes since March of the previous year, the Federal Reserve chose to leave its benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5% in its latest meeting. The Fed Funds Rate influences overnight borrowing rates for banks but is not synonymous with mortgage rates.

• The Fed's unanimous decision to pause rate hikes for the second consecutive meeting was influenced by concerns over the labor market's strength. The central bank seeks clear signs of labor market softening before considering further rate hikes.

• Future rate decisions will depend on forthcoming economic data, including November's job data from ADP and the Bureau of Labor Statistics, as well as inflation reports.

Home Prices Hitting Highs

The Case-Shiller Home Price Index, regarded as the gold standard for home price appreciation, indicated a 0.9% increase in home prices nationwide from July to August, marking the seventh consecutive month of gains. The Federal Housing Finance Agency's House Price Index also reported a 0.6% rise in August, with gains recorded every month of the year.

• Home values have reached new all-time highs, recovering from the downturn witnessed in the latter part of the previous year.

• Depending on the index, home prices are projected to appreciate between 6% to 8% this year, signifying substantial opportunities for wealth accumulation through homeownership and appreciation gains.

In this dynamic economic landscape, staying informed is paramount. For the most up-to-date information and insights, consult reputable sources and monitor economic trends as they unfold.

Disclaimer: The information provided is for informational purposes only and should not be considered as financial or investment advice. Economic conditions and data are subject to change, and it is advisable to consult with financial professionals for personalized guidance.