Jason's World

The personal consumption expenditures (PCE) report on Thursday and the job report last Friday were supposed to be market-shattering events because of the growing unease among the markets of prolonged interest rate elevation and a sagging consumer and labor market. Needless to say, more hawkishness from the Fed than what we have now will put even more pressure on the banking industry-adding to the pressure from already elevated interest rates, flashbacks from the March-April banking crisis, and a looming wave of CRE defaults. But instead these reports created relatively little fanfare, likely owing to how close to estimates they were. The stock market moved little, albeit positively, in the wake of these reports. The PCE data came in exactly as expected, while the jobs report showed an 187,000 increase in payrolls, 17,000 above the analyst estimate of 170,000. While this was no doubt a beat, the payroll numbers in the past two months were revised down sharply, with the July data moving from 187,000 to 157,000, and the June data moving from 185,000 to 105,000, the smallest gain since December 2020.

The one big surprise was the major uptick in the employment rate in August to 3.8%-analysts expected the unemployment rate to remain steady from last month at 3.5%. This amounted to an increase in the number of unemployed by 514,000. An uptick in unemployment may sound like a bad thing on the surface, but when jobs are being increased, this means that more workers are coming off the sidelines to find work because they believe that the job market is doing better. This is reflected in a 0.2-point jump in the labor force participation rate, from 62.6% to 62.8%, from July to August.

The slight positive movement reflected a cautious optimism that the Fed would at the very least stop hiking rates, but in my opinion that belief is misplaced-after all, workers coming off the sidelines means that they are optimistic about the economy. The economy is gaining new workers, which likely puts upward pressure on consumer spending, which is another reason for the Fed to remain hawkish.

For the week ahead, factory orders, jobless claims and consumer credit will give more crucial insight into the health of the labor and consumer markets. The consumer credit reading in particular will give insight as to how consumers are doing as their savings from the pandemic dry up-specifically whether Americans are borrowing more to cover their new spending habits or cutting back on spending.