Weekly Economic Update: October 10, 2022

Market gains early last week were enough to outpace declines later, as stocks enjoyed their best weekly gains in a month. The Russell 2000, the Dow, and the Global Dow paced the other major benchmark indexes. The S&P 500 climbed higher, while the Nasdaq was able to hold on to a marginal gain. Traders saw a strong labor report, which included an unexpected drop in the unemployment rate, as adding fuel to the Federal Reserve’s fire of continuing interest-rate hikes. Crude oil prices advanced for five consecutive days following an OPEC+ cut in production, prompting some analysts to predict prices will soon reach $100.00+ per barrel. Gas prices, which had steadily declined during the summer, are now heading higher. Last week saw 10-year Treasury yields rise 8.0 basis points, with the dollar and gold prices also advancing.

Last Week’s Economic News

• The labor sector continued to show strength in September. According to the latest figures from the Bureau of Labor Statistics, there were 263,000 new jobs added in September following an additional 315,000 jobs added in August. Monthly job growth has averaged 420,000 thus far in 2022, compared with 562,000 per month in 2021. In September, notable job gains occurred in leisure and hospitality and in health care. In September, average hourly earnings rose by $0.10, or 0.3%, to $32.46. Over the past 12 months, average hourly earnings have increased by 5.0%. In September, the average work week was 34.5 hours for the fourth month in a row. In September, the unemployment rate fell 0.2 percentage point to 3.5%. The number of unemployed persons fell 4.5% to 5.75 million in September. Among the unemployed, the number of those who permanently lost their jobs decreased by 173,000 to 1.2 million in September. The labor force participation rate was little changed at 62.3% in September, and the employment-population ratio was unchanged at 60.1%. Both measures are 1.1 percentage point below their values in February 2020, prior to the coronavirus pandemic. In September, 5.2% of employed persons teleworked because of the coronavirus pandemic, down from 6.5% in the prior month and well below the 35.4% figure from May 2020. In September, 1.4 million persons reported they had been unable to work because their employer closed or lost business due to the pandemic, down from 1.9 million in August and from 49.8 million in May 2020. Overall, the relative strength of the September jobs report will most certainly bolster the Federal Reserve’s premise that the state of the economy can withstand the present pace of interest-rate increases to combat inflation.

• Manufacturing conditions improved marginally in September, according to the latest purchasing managers’ index from S&P Global. The S&P Global US Manufacturing Purchasing Managers’ Index posted 52.0 in September, up from 51.5 in August. A reading above 50.0 indicates growth. Output and new orders expanded in September due to an increase in client demand, with the quickest rate of growth since May. Input costs rose again in September, but at a slower pace than in August. In turn, manufacturers softened the increase in selling prices in an effort to drive sales.

• September also saw business output improve in the services sector. According to the US Global Services PMI™, survey respondents indicated that business activity in the services sector contracted, but at a slower pace than in August. The decline in output was marginal, as demand increased somewhat. New orders, particularly on the domestic side, improved, while export business declined. While the data in the services sector indicates improvement, the third quarter was the second worst-performing three-month period since 2009.

• According to the latest information from the Job Openings and Labor Turnover Summary, the number of job openings decreased 1.1 million to 10.1 million at the end of August, the lowest level since June 2021. The largest decreases in job openings were in health care and social assistance (-236,000), other services (-183,000), and retail trade (-143,000). In August, the number of hires was little changed at 6.3 million, while the number of total separations was 6.0 million, little changed from the previous month. Within separations, there were 4.2 million quits and 1.5 million layoffs and discharges, little changed from the July totals.

• The international trade in goods and services trade deficit retracted by 4.3% in August, according to the latest report from the Bureau of Economic Analysis. Exports decreased 0.3% and imports fell 1.1%. Year to date, the goods and services deficit increased 24.4% from the same period in 2021. Exports increased 19.9% and imports increased 21.0%.

• Gasoline prices have risen for two consecutive weeks. The national average retail price for regular gasoline was $3.782 per gallon on October 3, $0.071 per gallon above the prior week’s price and $0.592 higher than a year ago. Also as of October 3, the East Coast price decreased $0.072 to $3.336 per gallon; the Gulf Coast price slid $0.037 to $3.081 per gallon; the Midwest price rose $0.091 to $3.722 per gallon; the West Coast price increased $0.515 to $5.687 per gallon; and the Rocky Mountain price fell $0.045 to $3.874 per gallon. Residential heating oil prices averaged $4.622 per gallon on October 3, about $1.477 per gallon more than a year ago.

• For the week ended October 1, there were 219,000 new claims for unemployment insurance, an increase of 29,000 from the previous week’s level, which was revised down by 3,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended September 24 was 1.0%, an increase of 0.1 percentage point from the previous week’s rate, which was revised down by 0.1 percentage point. The advance number of those receiving unemployment insurance benefits during the week ended September 24 was 1,361,000, an increase of 15,000 from the previous week’s level, which was revised down by 1,000.

Eye on the Week Ahead

Important inflation data is available this week with the release of the September consumer price index, import and export prices, and the producer price index. Traders are hoping each of these reports will show inflationary pressures are slowing.

Have a nice week!

Sincerely,

Robert G. Carpenter