Job Growth Rebounds; Wage Growth Slows. The pace of job creation rebounded in September. Payroll employment increased by 336,000, about twice the consensus estimate. Gains for August and July were both revised upward. This was the largest monthly increase in payrolls since January. Still, household employment rose by only 86,000, down from August’s 222,000 and the third straight month of smaller gains. The unemployment rate held steady at 3.8%, as did the labor force participation rate at 62.8%.
Tempering the unexpected jump in payrolls, average hourly wages rose by just 0.21% in September (from August) to $33.88. The annualized three-month change was 3.4%, down from 4.9% in June. Average weekly hours held steady at 34.4; which helped limit the increase in average weekly earnings to 0.21% (from August) and 3.5% YOY. The annualized three-month change in average weekly earnings therefore slowed to 3.4% from 5.6% in August.
Other Economic Indicators. The BEA’s third estimate for 23Q2 seasonally-adjusted real GDP growth was 2.1%, unchanged from its second estimate. In 23Q1, growth was estimated to be 2.2%. Private inventories were flat in the quarter, after having fallen sharply in 23Q1, but this was offset by an easing in the growth of personal consumption expenditures.
Seasonally-adjusted personal income rose 0.4% in August, up from 0.2% in July and 0.2% in June. The annualized 3-month increase was 3.4% up from 3.2% in July. Personal consumption expenditures increased by 0.4% month-to-month, down from 0.9% in July and 0.4% in June. Monthly personal savings declined 4.7% in August, the third consecutive monthly decline, but less than July’s 16.4% seasonally-adjusted decline.
The ISM’s September Manufacturing PMI rose 1.4 points to 49.0, the third straight monthly increase; but the below 50 reading was the eleventh consecutive month of contraction. The pace of the decline has slowed since June. Production and employment both increased in September. New orders contracted at a slower pace. Inventories (both for the manufacturers and their customers), prices and backlogs are still contracting. Since order activity remains soft, many manufacturers are negotiating with suppliers to reduce operating costs.
The ISM’s September Services PMI eased 0.9 points to 53.6 from 54.5 in July. Nearly all components are still on the rise; but the pace of order growth has slowed and backlogs are starting to contract. Many respondents indicate that sales trends and costs have been relatively stable. Still, the data suggests that activity has slowed from previous months.
Industrial production increased 0.4% in September, down from a revised 0.7% increase in August. Manufacturing rose just 0.1%, but mining and utilities were up 1.4% and 0.9%, respectively. Production of final products was estimated to have risen 0.2%. YOY total industrial production was up 0.2%.
Railroad carloads increased 2.3% in September (from a year ago). Results were once again mixed across sectors, with gains in motor vehicles & parts, petroleum & related products and chemicals offsetting declines in grain, coal and coke.
Despite the improvement, the American Association of Railroads characterized the outlook as uncertain. September was the strongest of the year for intermodal container shipments which rose 0.7% from September 2022 due to order fulfillment for the upcoming holiday season. Year-to-date, total traffic is down 4.3%, as an 8.2% drop in intermodal units more than offset a 0.3% gain in rail carloads.
New home sales decreased 8.7% in August (from July) to a seasonally-adjusted annual rate (SAAR) of 675,000 units, but were up 5.8% YOY. Sales have been surprisingly strong in the face of the steady increase in mortgage rates (which averaged 7.49% during the week of October 4, the highest level in more than 30 years). Although builders have been reporting solid rebounds in 23Q2 new orders, many indicators are now weighing on sentiment, both consumer and builder, as the high mortgage rates are now an even more formidable obstacle to buyers seeking to qualify for a mortgage. The NAHB reported that its housing market index, a measure of builder sentiment about the current and expected future pace of sales, fell below the neutral level of 50 to 45 in September for the first time since April, and it will likely fall further in October. The SAAR of single-family housing starts declined 4.3% to 941,000 units in August (from July) and was up 2.4% YOY. Single-family permits increased 2.0% sequentially in August and 7.2% YOY. If mortgage rates remain at or near current levels, the housing sector will slow further as the year comes to a close.
The Conference Board’s Consumer Confidence Index fell 5.7 points to 103.0 in September, from August’s upwardly revised 108.7. The present situation component rose 0.4 points to 147.1, but the expectations component fell 9.6 points to 73.7. Most respondents believe that business conditions, job availability and incomes will deteriorate in the months ahead.
The Economist’s Sept. 9th issue had a graphic analysis about the divergence between consumer confidence and the economic data. According to its analysis, consumer confidence is well below where it should be (and where it has been historically going back to 1980) in relation to the current data readings on the economy. That seems a fitting summary to my analysis of the economy and financial markets. The question now is how this wide gap will be reconciled. Will the economic data eventually fall to match consumer sentiment or will consumers become more optimistic?
Published and Posted on October 10, 2023
Stephen P. Percoco
Lark Research
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