Economic Update for October 16, 2023-Unemployment, Government Shutdown and More

From the Financial Times: US inflation higher than expected in September at 3.7%-US inflation was higher than forecast in September, raising the prospect that the Federal Reserve may raise interest rates following similarly robust recent data on the strength of the jobs market.
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From the New York Times: Inflation Slowdown Remains Bumpy, September Consumer Price Data Shows-Prices are rising at a pace that is much less rapid than in 2022, but signs of stalling progress are likely to keep Federal Reserve officials wary.

Consumer prices grew at the same pace in September as they had in August, a report released on Thursday showed. The data contained evidence that the path toward fully wrangling inflation remains a long and bumpy one.

The Consumer Price Index climbed 3.7 percent from a year earlier. That matched the August reading, and it was slightly higher than the 3.6 percent that economists had predicted.

The report did contain some optimistic details. After cutting out food and fuel prices, both of which jump around a lot, a “core” measure that tries to gauge underlying price trends climbed 4.1 percent, which matched what economists had expected and was down from 4.3 percent previously. And inflation is still running at a pace that is much less rapid than in 2022 or even earlier this year.

Even so, several signs in the report suggested that recent progress toward slower price increases may be stalling out — and that could help to keep officials at the Federal Reserve wary.

The S&P 500 fell 0.6 percent and the yield on 10-year Treasuries rose on Thursday to 4.7 percent, as investors worried that September’s inflation report showed less progress than they had hoped for, both in rents and a measure of inflation that strips out volatile goods and services.

Fed policymakers have been raising interest rates in an effort to slow economic growth and wrestle inflation under control. They have already lifted borrowing costs to a range of 5.25 to 5.5 percent, up sharply from near-zero 19 months ago. Now, they are debating whether one final rate move is needed.

Given the fresh inflation data, economists predict that policymakers are likely to keep the door open to that additional rate increase until they can be more confident that they are well on their way to winning the battle against rising prices. Inflation has begun to flag, but the September data served as a reminder that it is not yet clearly vanquished.

US jobs growth surges past expectations with 336,000 new posts-The US added 336,000 new jobs in September, far more than expected, fueling investors’ anxieties that interest rates will stay higher for longer.

From the Bureau of Labor Statistics: Payroll employment rises by 336,000 in September; unemployment rate unchanged at 3.8%. Total nonfarm payroll employment rose by 336,000 in September, and the unemployment rate was unchanged at 3.8 percent. Job gains occurred in leisure and hospitality; government; health care; professional, scientific, and technical services; and social assistance.

The number of job openings increased to 9.6 million on the last business day of August, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations changed little at 5.9 million and 5.7 million, respectively. Within separations, quits (3.6 million) and layoffs and 
discharges (1.7 million) changed little. This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector, by industry, and by establishment size class.

From the New York Times: Strong U.S. Job Growth Shows Economy Is Defying Challenges-Employers added 336,000 jobs in September, almost double what experts had forecast and the biggest gain since January. Markets welcomed the report.

In a sign of continued economic stamina, American payrolls grew by 336,000 in September on a seasonally adjusted basis, the Labor Department said on Friday.

The increase, almost double what economists had forecast, confirmed the labor market’s vitality and the overall hardiness of an economy facing challenges from a variety of forces.

It was the 33rd consecutive month of job growth, and the increase was the biggest since January.

The unemployment rate, based on a survey of households, was steady at 3.8 percent. It has been below 4 percent for nearly two years, a stretch not achieved since the late 1960s.

“This is an economy on fire,” said Samuel Rines, an economist and the managing director at Corbu, a financial research firm.

Hiring figures for July and August were revised upward, showing 119,000 more jobs than previously recorded. Taken together, the gains reflected confidence among employers that the economic recovery has plenty of room left to run.

The figures were being closely watched for signals of the next move by Federal Reserve policymakers, who have tried to rein in both wages and prices by pulling up interest rates. Because further rate increases can negatively affect stock and bond prices, robust job numbers often cause a sell-off among investors.

The market reaction was generally positive on Friday, largely because the report showed an economy still growing while wage growth moderates, leading many to believe the Fed will keep rates steady. Average hourly earnings for workers rose 0.2 percent from the previous month and 4.2 percent from September 2022. While solid, the increase was smaller than anticipated, and the one-year pace was the slowest since March 2020.

Hiring Is Rising Along With Rates. Are They on a Collision Course?-A run-up in longer-term interest rates could help the Federal Reserve get the economic cool-down it wants — but it also risks a bumpy landing.

Mortgage rates and other key borrowing costs have climbed sharply since the middle of the summer, adding to an increase that had already taken place in response to Federal Reserve policy rate moves since early 2022.

The latest run-up in interest rates started in financial markets, and it has come in part because economic growth has proved so much stronger than expected. That has prompted investors to believe that the Fed may need to keep rates elevated for longer to tamp it down.

America’s economy retains surprising oomph a year and a half into the Fed’s campaign to slow the economy. Employers added 336,000 jobs last month, sharply more than the 170,000 economists had predicted, emphasizing just how solid the job market remains.

But the recent pop in longer-term rates could spill out from markets to curb that strength in the real economy. Higher interest rates — and especially climbing yields on the all-important 10-year Treasury bond — make it more expensive to finance a car purchase, expand a business or borrow for a home. They have already prompted pain in the heavily indebted technology industry, and have sent jitters through commercial real estate markets.

The increasing pressure is partly a sign that Fed policy is working: Officials have been lifting borrowing costs since early last year precisely because they want to curb inflation by discouraging borrowing and spending. Their policy adjustments sometimes take a while to push up borrowing costs for consumers and businesses, but are now clearly passing through.

From the New York Times: Higher Rates Stoke a Growing Chorus of Deficit Concerns-A long period of higher interest rates would make the government’s large debt pile costly, a possibility that is fueling a conversation about debt sustainability.

The U.S. government’s persistent budget deficit and growing debts were low on Wall Street’s list of worries when interest rates were at rock bottom for years. But borrowing costs have risen so sharply that it is causing many investors and economists to fret that the United States’ big debt pile could prove less sustainable.

Federal Reserve officials have raised interest rates to about 5.3 percent since early 2022 in a bid to control inflation. Officials predicted at their meeting last month that interest rates could remain high for years to come, shaking expectations among investors who had bet on rates falling notably as soon as next year.

The realization that the Fed could keep borrowing costs high for a long time has combined with a cocktail of other factors to send long-term interest rates soaring in financial markets. The rate on 10-year Treasury bonds has been climbing since July, and reached a nearly two-decade high this week. That matters because the 10-year Treasury is like the market’s backbone: It helps drive many other borrowing costs, from mortgages to corporate debt.

Retailers’ Seasonal Hiring Plans Signal a Cooling Labor Market-After scrambling to fill out work forces in recent years, many companies are reporting more modest goals for temporary employment.

s the most important selling season for retailers approaches, job applicants may feel a chill.

Macy’s and Dick’s Sporting Goods plan to hire fewer seasonal workers after a surge in the past two years, when shoppers thronged to stores after pandemic lockdowns and employers struggled to keep up. Many retailers have dropped the incentives they used over the past few years to bring workers in the doors, such as signing or referral bonuses and steeper employee discounts.

The career site Indeed said that searches for seasonal jobs were up 19 percent from last year, but that listed positions were down 6 percent. Companies helping businesses find temporary workers note that major retailers have been slower to release hiring plans this year. And on Indeed, fewer job postings are described as urgent needs.

Seasonal hiring helps retailers handle the increased shopping during the fourth quarter, often referred to as “peak season.” Sales in November and December can account for a quarter of some retailers’ annual revenue. In the weeks leading up to Christmas, foot traffic in stores and online shopping are usually at their height.

Early estimates point to an increase in retail spending this holiday season, but not at the fast pace of recent years.

Some economists and consultants see the trends in hiring and pay as a sign that the red-hot labor market of the past couple of years has cooled. Retailers’ work forces, unsteady throughout the Covid-19 pandemic, are starting to stabilize. As inflation erodes shoppers’ budgets and confidence — and savings from pandemic relief programs are drawn down — the hiring plans may be part of a cautious approach that extends to inventories and sales projections.