Overview: Over the past week, investors viewed the key labor market and inflation reports as roughly neutral overall, and mortgage rates ended the week slightly higher.
The spread of COVID restrained job creation for a second straight month. The economy added just 194,000 jobs in September, well below the consensus forecast of 500,000. While this was similar to the increase in August, it was down from gains of over 1 million jobs in July. Beyond the headline number, however, the other components of the report indicated greater strength in the labor market. Upward revisions added 169,000 jobs to the results for prior months. The unemployment rate declined from 5.2% to 4.8%, far below the consensus forecast of 5.1%, and to the lowest level since February 2020. These two components often present a somewhat different picture because the figures for job gains are calculated from data reported by companies, while the unemployment rate is based on a separate survey of individuals. Average hourly earnings, an indicator of wage growth, were a solid 4.6% higher than a year ago, up from an annual rate of increase of 4.0% last month.
The Consumer Price Index (CPI) is a closely watched inflation indicator that looks at price changes for a broad range of goods and services. Core CPI excludes the volatile food and energy components and provides a clearer picture of the longer-term trend. In September, core CPI was 4% higher than a year ago, unchanged from last month and matching expectations. This was down from an annual rate of increase of 4.5% in June, a level not seen since 1991.
The minutes from the September 22 Federal Reserve meeting released on Wednesday provided greater detail on the plans for scaling back the massive bond purchase program put in place near the start of the pandemic. According to the minutes, the Fed likely will begin to gradually taper its current pace of $120 billion per month by cutting $15 billion per month beginning in either November or December. At this rate, the purchases would conclude during the middle of 2022. This time frame was closely in line with investor expectations.
Monthly Job Gains (millions)
October 15 — Retail Sales report
October 19 — New Residential Construction report (aka Housing Starts)
October 21 — Existing-Home Sales report