Overview: Despite potential distortions from the hurricanes, investors focused on stronger-than-expected economic data over the past week. The Fed minutes contained little new information and the reaction was slight. Mortgage rates ended a little higher.
The results of Friday’s key labor market report for September were difficult to interpret since much of the data was affected to varying degrees by the recent hurricanes. Because of the way the data is calculated, the economy lost jobs in September. This was clearly tied to the hurricanes, since the losses were heavily concentrated in areas such as leisure and hospitality. If a worker did not get paid during the period of the survey because a business was closed, that person was not included in the job totals.
By contrast, the Labor Department said that the survey data used to calculate the unemployment rate was not affected by the hurricanes. In this survey, people who report that they have a job are counted as employed even if they did not receive a paycheck during the period. The unemployment rate in September unexpectedly declined to 4.2%, which was the lowest level since February 2001.
Average wages in September were 2.9% higher than a year ago, which was the highest reading since December 2016. Since many of the lost jobs were lower paying ones, the hurricanes had some impact on this data as well, but the effect likely was modest. Investors focused on the less affected data, strong wage growth, and the low unemployment rate, and pushed mortgage rates higher on Friday.
The minutes from the September 20 Fed meeting released on Wednesday confirmed that the majority of Fed officials expect that it will be appropriate to gradually raise the federal funds rate. Most investors think that the next rate hike will take place at the December Fed meeting.
Looking ahead, the Retail Sales report and the Consumer Price Index (CPI) will be released on Friday. Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator. CPI is a widely followed monthly inflation report. The Housing Starts report will come out on October 18 and the Existing Home Sales report on October 20.