Today’s employment report shows the U.S. economy remained strong last month. Private sector payrolls, hours worked, and weekly earnings were all strong. A sharp decline in government jobs (good news) substantially reduced the total payroll gains.
The Week That Was
Today’s September employment report shows the economy remained strong last month.
Private-sector payroll jobs increased by 317,000, a 3 percent annual rate. Weekly hours worked and average hourly earnings rose at 6 percent and 7 percent annual rates, respectively.
The biggest surprise this past week came from the ISM surveys. Advanced Markit business surveys indicated the economy slowed in September. The ISM business survey shows businesses continued to expand at a rapid pace.
What happened? These surveys are from different organizations getting feedback from different businesses. As with all economic data, they can provide differing pictures of the strength in the economy.
The ISM data has a tendency to show stronger growth than the Markit survey. When economic reports differ, we have to look elsewhere for confirmation.
Weekly initial unemployment claims continue to trend lower, with 326,000 the first week in October. This is down from 340,000 in September.
The number of people receiving unemployment payments also continued to decline, falling to 2.7 million at the end of September.
Things to Come
Given the interest in inflation, next Wednesday’s report on consumer prices could move markets.
Business surveys indicate price pressures remained as intense in September as in previous months.
Oil prices rose by 5.6 percent in September and are still rising. This should lead to another strong increase in consumer prices, particularly for the total.
The Fed minutes are not likely to reveal anything new. Ignore them.
Friday’s report on September retail sales should also be interesting. August sales were up 18 percent from the pre-Covid peak in February, 2000. Most wage and income data show an increase of 6 percent to 9 percent above the same pre-Covid peak. With sales so much above income growth, we remain overdue for a decline in retail sales.
A reported 6 percent drop in September vehicle sales will also contribute to a likely downturn.
Market Forces
Stocks rebounded this past week with gains of 1 percent to 3 percent.
The Nasdaq and QQQs were at the low end of this range. The S&P500, Dow, and small caps were at the upper end.
Although the rebound in stock prices is encouraging, most stock indexes remain below their 50-day averages, with 10-day averages below the 50-day averages. Hence, technical (psychological) indicators remain negative.
The economic news this week came in better than I had expected. Although advanced Markit business surveys suggested the economy was slowing, the ISM business surveys pointed to continued strength. Markit also revised its advance September data to show stronger growth among service companies.
On balance, the business surveys show September business activity remained strong.
Businesses also reported near-record increases in prices in September. Concern over inflation is one of the clear forces putting upward pressure on interest rates. The yield on 10-year Treasury notes is up 30 basis points since mid-September.
When interest rates surge as they have done in recent weeks, there is often a leveling-off period.
Despite any potential leveling off, the upward pressure on rates should continue.
As for stocks, the most likely outlook is for relative stability before resuming their upward drift.
Outlook
Economic Fundamentals: neutral
Stock Valuation: S&P500 overvalued by 25 percent
Monetary Policy: expansive
