For a fourth consecutive time this year, the Federal Reserve increased interest rates 0.75 percentage points. In the official statements accompanying the increase, it was acknowledged the lagged effect of rising rates on the economy and that further increases may eventually need to taper. However, comments made by the Federal Reserve chairman after the release underlined the central bank’s commitment to taming inflation, even if it meant further additional aggressive increases.
The labor market continues to add jobs and to post wage increases near five percent. However, both the pace of hiring and wage gains were slower last month. Labor is an ingredient to everything produced in the economy and is a cost to producers, so wage growth is associated with inflation. As the effects of rising interest rates are more fully transmitted through the economy, the labor market may cool and allow the slack to emerge to slow wage costs and tame overall inflation.
Employment: The U.S. economy was estimated to have added 261,000 jobs last month. This was the lowest addition since December 2020, but job growth has nonetheless remained resilient to interest rate increases. Revisions to previous months were mixed. The figure for August fell -23,000 positions to +292,000. The figure for September rose +52,000 to +315,000. The twelve-month average for job growth is currently +442,000.
The unemployment rate moved higher, from 3.5% to 3.7% month-over-month. This increase occurred despite a slight decrease in the size of the labor force and was a result of a decrease in the number of employed workers (the unemployment rate is the ratio of the number of people working over the number of those in the labor force or wanting to work). Nonetheless, unemployment rates below four percent are rare, and there have been just a handful of other periods when it held at levels this low.
Wage growth slowed to the lowest level in about a year (4.7%) in October. Despite the slowdown, the latest value easily exceeds growth rates experienced after the financial crisis, which topped out near 3.5% in the decade that followed the last recession.
Consumer Confidence & Spending: After two monthly increases, the Conference Board’s Index of Consumer Confidence decreased month-over-month in October (from 107.8 to 102.5). The current value is the lowest since July. In both June (98.4) and July (95.3), readings were below 100. These were the only two values below 100 since early 2021. The lowest value reached after COVID was 85.7. The long-term average (since 1970) is 93.9.
Overall consumer spending increased +0.3% month-over-month in seasonally and inflation-adjusted terms in September. Year-over-year, overall spending was up +1.9%. This was the slowest rate of annual growth since early 2021. Spending on garments was up +1.4% month-over-month but was down -0.3% year-over-year.
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