Macro Flash Report
Takeaway:
Before the FED’s outsized September rate cut, the labor market started showing signs of uncomfortable cooling, but later data suggest those concerns were overstated. In the coming weeks, impacts from the hurricanes will likely cause upward pressure in claims and downward pressure on payrolls, both false signals of the underlying dynamics.
A surge was seen in the most recent Jobless Claims report:
• Initial Claims rose to 258k versus the expected 230k, hitting the highest level in 14 months.
• Jobless Claims 4-week Average also increased slightly, reaching 231k from 224k, though this remains below the critical “red-flag” threshold of 260k.
• Continuing Claims jumped to 1,861k versus the forecasted 1,830k, and up from a revised 1,819k in the prior week.
While these surges may be concerning, upon further investigation this increase is primarily due to hurricane related impacts and the ongoing Boeing strike. Therefore, this doesn’t suggest a fundamental shift in the labor market. We expect these figures to remain elevated in the near term as the effects of Hurricane Milton are absorbed. Furthermore, we normally see a temporary spike in these figures after a Hurricane (see chart above).
While these temporary disruptions may lead to weaker labor market data in the near term, we anticipated that the FOMC will likely look past this as the underlying labor market indicators continue to demonstrate resilience:
• JOLTS Job Openings rose to 8,040k in August versus the anticipated 7,655k, and up from an upwardly revised 7711k in July, signaling increased labor demand.
• Challenger Job Cuts reported 72,821 job cuts in September, down slightly from 75,891 in August.
• Nonfarm Payrolls added 254k in September, much higher than an upwardly revised 159k in August, and well surpassing the forecasted 140k, marking the strongest job growth in six months. Furthermore, the 6-month moving average in payrolls is currently at 166k, well above the estimated 110k natural replacement level.
• The Unemployment Rate fell to 4.1%, down from August’s 4.2% and better than expectations of holding steady at 4.2%.
Looking ahead, while current data provides a significant amount of confidence that the labor market is stable, there are risks in both directions moving forward. If the Federal Reserve cuts interest rates too sharply too soon, there could be upward pressure on inflation, resulting in the wage-price spiral which would lead to prohibitive rate hikes. On the other hand, labor market data historically tends to deteriorate rapidly once it begins to weaken, making any negative shifts in the data a concern for future outlooks.