Overview: Over the past week, investors continued to react to aggressive talk from U.S. and other global central bankers about the critical need to bring down inflation. The major economic data was essentially neutral overall and had little impact. As a result, mortgage rates increased.
The monthly Employment Report released on Friday contained a mix of stronger and weaker than expected data points. The economy gained 315,000 jobs in August, which was very close to the consensus forecast, but the figures for prior months were revised lower by 107,000. The best performing sector was professional and business services, followed by healthcare and retail. The economy has regained all of the jobs lost during the pandemic.
The unemployment rate unexpectedly increased from 3.5% to 3.7%, but this was mostly due to a large number of people entering the labor force, which is a sign of strength. This was demonstrated by an increase in the labor force participation rate (the percentage of the population that is either working or looking for work) to 62.4%, matching the highest level of the year. Average hourly earnings, an indicator of wage growth, were 5.2% higher than a year ago, which was slightly below expectations. Wage gains peaked at an annual rate of 5.6% in March. While higher pay is great news for workers, Federal Reserve officials would like to see wage increases continue to slow, since they add to inflationary pressures.
The Institute of Supply Management (ISM) released data this week showing that the manufacturing and services sectors grew a little more quickly than expected. The ISM Manufacturing Index was unchanged at 52.8, while the Services Index climbed to 56.9. Levels above 50 indicate that the sectors are expanding. These reports reflect the recent shift in consumer spending from goods to services.
Monthly Job Gains (thousands)
Sept 8 — European Central Bank meeting
Speech by U.S. Fed Chair Jerome Powell
Sept 13 — Consumer Price Index (CPI)
Sept 15 — Retail Sales report