The US economy has once again defied expectations with an impressive monthly jobs report for September, adding 334,000 nonfarm payrolls to the labor market. This figure nearly doubled the consensus estimate provided by economists surveyed by Bloomberg and stands as the highest monthly addition since January.
The unexpected surge in job growth has stirred discussions about the possibility of a Federal Reserve rate hike. According to the CME FedWatch Tool, the odds of such a hike in November have increased to 30%, up from a mere 18% chance last week. Wall Street economists are now analyzing whether this robust September report marks one of the last signs of economic strength before the Fed’s historically swift tightening cycle takes hold of the elusive US consumer.
EY’s chief economist, Greg Daco, expressed caution in a recent research note, stating, “Despite all the excitement around the September report, we don’t exclude the possibility of a negative payroll print before year-end.” Daco cited various factors, including the United Auto Workers strike, declining consumer spending, and cautious business activity, which he believes could decelerate labor demand in the coming months. Furthermore, EY increased its odds for a recession within the next 12 months to 50%, up from 40%.
Nevertheless, the current economic situation appears more favorable than initially anticipated, with fears of a slowdown being projections rather than certainties. Similar concerns were raised in July when economists downplayed record-high consumer confidence and during March’s retail sales decline, which proved to be an exception rather than a trend, as consumers continued spending.
While there have been subtle indications of cooling, recent data continues to reflect a resilient economy with occasional cooling spells. The second-quarter Gross Domestic Product (GDP) showed growth at a 2.1% pace, and expectations are for a 4.9% growth rate in the current quarter, according to the Atlanta Fed’s GDPNow Forecaster. A recent government revision also revealed that households’ “excess savings” were higher than previously estimated, potentially spurring more consumer spending.
Wells Fargo senior economist Tim Quinlan highlighted the shift in economists’ and financial markets’ sentiments, noting that initial recession forecasts have been largely revised, postponed, or canceled. Quinlan emphasized, “To some extent, the rationale for these more optimistic assessments is a recognition of the remarkable resilience of the consumer.”
Quinlan and Wells Fargo had predicted that a slowdown in the labor market would eventually impact consumer behavior. However, the latest data suggests that this hasn’t materialized as of the most recent jobs report. This optimism is further supported by the August Job Opening and Labor Turnover Survey (JOLTS), which reported job openings reaching their highest levels since May. Meanwhile, jobless claims have remained subdued, signaling a low layoff environment.
Nonetheless, there are looming threats on the economic horizon, characterized by EY’s Greg Daco as the “quadruple threat.” High oil prices have dampened consumer confidence, an ongoing strike by auto workers continues to disrupt the manufacturing sector, the resumption of student loan payments is expected to strain consumer budgets, and the specter of a potential government shutdown has re-emerged. The impact of elevated interest rates on both consumers and corporations also adds to the concerns, indicating that the repercussions of monetary policy changes are still a significant factor to consider.
Despite these challenges, investors appear to remain optimistic as stocks rallied on Friday afternoon, demonstrating resilience in the face of mounting uncertainties. The US economy continues to navigate a complex landscape, with the September jobs report offering a glimmer of hope amidst the ongoing economic discussions and uncertainties.
Source: Yahoo Finance
