EMPLOYMENT
Nonfarm payrolls increased by 187,000 jobs in August, slightly more than expected. Revisions to the last two months’ reports subtracted 110,000 jobs. The unemployment rate rose from 3.5% to 3.8% as labor force participation rose from 62.6% to 62.8%. Average hourly earnings were up 0.2% last month and have risen 4.3% over the last twelve. The Job Openings and Labor Turnover Survey (JOLTS) job openings survey fell to approximately 8.8 million unfilled jobs, substantially less than the expected 9.5 million openings.
Our Take: The biggest news out of this month’s jobs report is the increase in labor force participation. Although this caused an uptick in the unemployment rate, returning workers should help to cool the tight labor market. The decline in the JOLTS survey is a perfect example as a growing labor force fills open positions. The Fed is likely to view the employment report as evidence of a slightly cooling economy which allows the Federal Open Market Committee (FOMC) to hold rates steady at their next meeting.
CHINA
Purchasing Managers’ Index (PMI) data indicate that China’s manufacturing sector improved in August but remains in contraction, while the service sector slowed to barely be in expansion. The government and the People’s Bank of China (PBOC) announced several small and targeted measures to stimulate growth and to support the yuan and the stock markets.
Our Take: This week’s reports place China’s GDP growth targets further out of reach and offer more evidence that the post-COVID rebound is done. China is unlikely to be the key support of global growth that it has been in the past few decades. The Chinese government is still holding off on any large and broad-based consumer stimulus. This hesitancy could be due to philosophical opposition from President Xi and the Chinese Communist Party or due to insufficient debt capacity, especially if the government feels compelled to make investors in property developers and local government financing vehicles whole.
PERSONAL INCOME AND SPENDING
Personal income rose 0.2% in July while spending increased 0.8%.
Our Take: Income growth was a little lower than expected while spending was slightly higher. The consumer continues to drive the economy and consumption shows little sign of slowing.
INFLATION
July inflation, as measured by the Personal Consumption Expenditures deflator (PCE), rose 0.2%. The core PCE was also up 0.2% in July and has risen 4.2% over the past year.
Our Take: It is possible that higher rates are starting to work, as PCE inflation has moderated over the last two months. That said, core PCE is still twice what the Fed desires and the Fed’s restrictive stance is unlikely to change anytime soon.
MUNICIPALS
New York City’s Traffic Mobility Review Board held its second public meeting to discuss the Metropolitan Transportation Authority’s (MTA) congestion pricing plan. Under the new tolling plan, which is expected to begin next year, commuters driving into the central business district in Manhattan will pay an additional toll during peak hours. The Traffic Mobility Review Board is responsible for recommending the congestion pricing structure and determining which groups or individuals should receive an exemption or discount.
Our Take: Several lawmakers have expressed concern that the congestion pricing structure will negatively impact commuters who are not able to afford the additional cost. The MTA, which has struggled financially, is expected to receive $1 billion per year under the new congestion tolling structure. In addition, the increased toll cost could change commuter habits, leading to more commuters taking public transportation. There should be more clarity surrounding the exact toll amounts and exemptions as the roll-out date approaches.