Financial News Highlights

  • The U.S. labor market perked up in September as job gains beat expectations, the unemployment rate ticked down and annual wage gains edged up in financial news.
  • The economic outlook, however, has been buffeted by significant disruptions, namely Hurricane Helene and a port worker strike.
  • The production side of the economy continues to travel two very different paths with manufacturing contracting, while services expand.

A Duo of Disruption Muddies the Economic Outlook

Financial News Chart 1 is a combination of a bar graph showing the monthly change in non-farm payrolls and a line graph showing the annual change in average hourly earnings over the period November 2022 to September 2024. While both variables have been on a general downtrend, they have ticked upwards over the last three months. The labor market was the data highlight in a week rocked by a major strike and natural disaster in financial news. Ten-year bond yields were notably higher relative to yesterday’s close (0.11 basis points) and the S&P500 was also up about 0.4% as the strong jobs report tempered expectations about the Fed’s cutting cycle.

Today’s employment report revealed that while the labor market may be cooling, it is doing so at a moderate pace (see commentary). Payrolls gains handily surpassed expectations, the unemployment rate edged down slightly, and wage gains nudged higher (Chart 1). Overall, the report was better than many market participants had expected and complements the previously released JOLTS data for August. The JOLTS report showed that while firms have slowed the pace of hiring there still continues to be steady demand for workers, as the number of job openings rose slightly. After the superheated labor market witnessed earlier in the post-pandemic period, followed by a steady cooling, the current leveling off in demand and supply is in line with a labor market that is coming into better balance.

On the production side, the ISM Manufacturing Index was unchanged in September, remaining in contraction territory for the sixth consecutive month. On the services side, however, things were looking better, with the ISM Services Index rising notably in September. Overall, the services sector continues to hold its ground, offsetting much of the weakness evident in the country’s manufacturing sector (Chart 2).
Financial News Chart 2 contains two line graphs showing the ISM Manufacturing and ISM Services index over the period October 2019 to September 2024. While the manufacturing index has remained in contraction territory (i.e. less than 50) for much of this year, the opposite has been true for services.

Major disruptions are threatening the health of the economy, however. Hurricane Helene, devastated parts of the southeastern United States with strong winds and heavy rains leaving widespread destruction. The destruction will depress near-term economic activity and is likely to negatively impact employment surveys. As rebuilding ensues, however, and normal economic activity resumes, a rebound is expected. The timeline on this, however, is uncertain.

In addition, a major dockworker strike at U.S. East and Gulf coast ports added to economic uncertainty. The strike was suspended late Thursday after the dockworkers’ union and the group representing ocean carriers reached an agreement to extend the currently expired contract, until January 15th. This allows dockworkers to resume work while negotiations over wages and port automation, which had been at an “impasse” for months, would now continue. While the worst effects of the strike have been avoided for now, the cloud of uncertainty continues to loom. If the two sides are not able to reach an agreement prior to the end of the extension, then things could be right back to where they were and the longer a strike persists, the greater the economic fallout (see commentary).

The job market showing signs of only gradual cooling, lends support to Powell’s view expressed earlier in the week that officials didn’t see a reason to lower rates as aggressively as they did at their most recent meeting. Barring the uncertainty of recent events, the labor market remains key in the Fed’s assessment of the most appropriate policy action.

Shernette McLeod, Economist | 416-415-0413

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