EMPLOYMENT
Nonfarm payrolls grew 254k in September, and the previous two months were revised upward by 72k. The unemployment rate fell from 4.2% to 4.1% and wages rose 0.4% from August and 4.0% from a year earlier. All of these readings were stronger than expected. Interest rates rose across the curve.
Our Take: Every part of the September report indicates a labor market that is more resilient than previously thought. This now has investors reassessing the size, timing and ultimate extent of rate cuts in the Fed’s easing campaign.
MIDDLE EAST
In response to Israel’s recent campaign of assassinations of Hezbollah and Hamas leaders and incursions and airstrikes in Lebanon, Iran launched a ballistic missile attack against Israel. Most of the missiles were intercepted, and casualties and damage in Israel were minor. Israel has continued its campaign against Hezbollah in Lebanon, and Netanyahu has stated that Israel must retaliate against Iran for the missile attack. Oil prices have risen sharply over the past five days over concern that a wider conflict could disrupt crude supply, while Treasuries rallied as investors sought havens.
Our Take: Israel and Iran have moved closer to a direct conflict that has the potential to involve other nations, including the U.S. Such a conflict would be a headwind to global growth and would likely threaten oil supplies, causing a price spike.
PORTS STRIKE
The International Longshoremen’s Association (ILA), the union representing East and Gulf Coast port workers, went on strike for three days until agreeing to continue working under the current contract until January 15. As part of this agreement the alliance of shipping lines and port operators tentatively agreed to a 61.5% wage increase over six years in the new contract. Negotiations to finalize the new contract will now center around port automation. The three-day strike caused the number of ships waiting to unload to double, and it is expected to take about a month for the resulting cargo backlog to clear.
Our Take: The short duration of the strike will limit the immediate economic damage. The negotiations over port automation will likely be more difficult to resolve. Recent experience demonstrates the potential inflationary impact of major supply chain disruptions, and a prolonged strike could be a setback in the Fed’s efforts to bring inflation back to its targeted level.
MUNICIPALS
Federal aid provided to school districts in the wake of the pandemic is expiring. The deadline to earmark available funds was September 30 and school districts must use the money before the end of January.
Our Take: Lawmakers required that 20% of the aid be used to combat learning loss incurred during the pandemic, which meant that a large portion of the funds had been used to hire additional educators and support staff as well as retain existing teachers. The expiration of the pandemic relief funding will likely lead to job cuts and hiring freezes for many schools.