| USA Nonfarm Payrolls (NFP) rose 254K in September, a lot more than the median economist forecast calling for a +150K print. This positive surprise was compounded by a 72K cumulative positive revision to the prior months’ results. Employment in the goods sector rose 21K as a 25K gain in the construction segment was only partially offset by a 7K decline in manufacturing. Employment in the mining/logging segment, meanwhile, edged up 3K. Jobs in service-producing industries jumped 202K, with notable increases for leisure/hospitality (+78K), health/social assistance (+72K), professional/business services (+17K) and retail trade (+16K). Alternatively, payrolls contracted 9K in the transportation/warehousing segment. The temporary help services category registered yet another decline in the month (-14K). In total, 223K jobs were created in the private sector (the most in 6 months), compared with 31K in the public sector, the latter split between federal (+2K) and state/local administrations (+29K). Average hourly earnings rose 4.0% YoY in September, up from 3.9% the prior month and two ticks above consensus expectations. Month on month, earnings progressed 0.4% following a 0.5% print the prior month (initially estimated at +0.4%). Released at the same time, the household survey (similar in methodology to Canada’s LFS) painted an even more upbeat picture of the situation prevailing in the labour market, with a reported 430K increase in employment. This gain, combined with an unchanged participation rate (62.7%) and a 150K increase in the size of the labour force, resulted in a one-tick decrease in the unemployment rate to 4.1%. Full-time employment surged 414K, while the ranks of part-timers shrank 95K. The ISM Non-Manufacturing PMI went from 51.5 in August to 54.9 in September, its highest level in 19 months. The new orders (from 53.0 to a 19-month high of 59.4) and business activity (from 53.3 to 59.9) indices signaled a significant acceleration in growth, while the employment gauge (from 50.2 to 48.1) fell back into contraction territory. Meanwhile, the prices paid sub-index (from 57.3 to 59.4) rose from 57.3 to an 8-month high of 59.4. Of the 18 services industries covered, 12 reported growth in the month. The Job Openings and Labor Turnover Survey (JOLTS) showed that the number of positions waiting to be filled rose from 7,711K in July (initially estimated at 7,673K) to 8,040K in August. As this increase was complemented by a slight decline in the number of persons looking for a job, the ratio of job offers to unemployed persons rose from 1.08 to 1.13, which remained below this indicator’s pre-pandemic levels (≈1.20-1.25). The monthly increase in job opening was led by construction (+138K), accommodation (+88K), transportation (+77K) and professional/business services (+65K). Alternatively, job postings decreased in the following categories: finance/insurance (-41K), education (-16K) and real estate (-11K). Total separations sank from 5,314K to a 4-year low of 4,997K, reflecting declines in both layoffs (from 1,713K to 1,608K) and voluntary resignations (from 3,243K to a 4-year low of 3,084K). The quit rate (i.e., number of voluntary resignations as a percentage of total employment) slipped from 2.0% to a post-pandemic low of 1.9%. Construction spending slipped 0.1% in August instead of expanding 0.2% as per consensus. Adding to the disappointment, the previous month’s result was revised downwards, from -0.3% to -0.5%. Spending increased 0.3% in the public sector in August, but this was more than offset by a 0.3% decline in the private sector. Within the latter segment, outlays on residential projects contracted 0.3%, while spending on non-residential structures edged up 0.1%. Chair Powell maintained that the FOMC does not believe that it needs “to see further cooling in labor market conditions to achieve 2% inflation.” The comment suggests that cooling wage growth and firming labor productivity growth have helped to quell the labor market’s inflationary impulse, which adds credence to the Committee’s decision to opt for a larger-than-expected 50 bps rate cut in September to support overall job growth. That said, Powell underscored that monetary policy is “not on any preset course” and emphasised the median forecast in the latest Summary of Economic Projections, which implies a 25 bps cut at each of the two remaining meetings this year (Nov. 7 and Dec. 18). UK Bank of England (BoE) Governor Andrew Bailey said in an interview with The Guardian newspaper that the bank could become “a bit more aggressive” in lowering borrowing costs if the inflation rate continues to fall. However, Chief Economist Huw Pill warned against cutting rates too far and too fast. He said inflation among services firms and pay growth represented “a continued source of concern.” The Bank of England is expected to cut interest rates again at its next meeting in November after holding borrowing costs at 5% in September. It made its first reduction in four years in August. Britain’s electric vehicle market will likely miss 2024 targets set by the zero-emission vehicle (ZEV) mandate and called on the new Labour government to introduce incentives for private buyers to speed up the switch to EVs. The comments were made in an open letter to finance minister Rachel Reeves ahead of the budget, and was signed by the Society of Motor Manufacturers and Traders (SMMT) CEO Mike Hawes and UK heads of several automakers. Britain’s ZEV mandate, introduced by the former Conservative government, requires at least 22% of an automaker’s new car sales to be purely EVs in 2024. Several global auto makers have scaled down their EV production targets on slowing demand. Britain’s construction sector grew at its fastest pace in nearly two-and-a-half years in September, helped by a sharp jump in civil engineering and an upturn in house-building, but costs faced by firms escalated, an industry survey showed on Friday. There was also concern among some companies about possible spending cuts and tax increases in finance minister Rachel Reeves first budget later this month. The S&P Global/CIPS UK Construction Purchasing Managers’ Index jumped to 57.2 in September (its highest since April 2022) from 53.6 in August and well above economists’ average expectation of 53.3 in a Reuters poll. Firms said lower borrowing costs and political stability after July’s landslide election win by Prime Minister Keir Starmer’s Labour Party were fuelling the growth acceleration. “A combination of lower interest rates, domestic economic stability and strong pipelines of infrastructure work helped to boost order books in recent months,” Tim Moore, economics director at S&P Global Market Intelligence, said. “Survey respondents cited rising sales enquires since the general election, as well as lower borrowing costs and the potential for stronger house-building demand as factors supporting business activity expectations in September.” EU Purchasing managers’ indexes (PMIs) pointing to weaker eurozone growth and inflation falling below the European Central Bank’s (ECB) 2% target combined to strengthen expectations of an interest rate cut in October. Annual headline inflation in the eurozone slowed to 1.8% in September, the lowest level since April 2021 and below forecasts for 1.9%. Core inflation also eased to 2.7% from 2.8% in August. The eurozone composite PMI reading for September was revised higher to 49.6 from 48.9 Comments from ECB officials indicated that their gradualist approach to easing monetary policy may be shifting. ECB President Christine Lagarde, for example, hinted that borrowing costs might soon be lowered. “The latest developments strengthen our confidence that inflation will return to target in a timely manner,” she told a European Union parliamentary hearing. “We will take that into account in our next monetary policy meeting in October.” Executive Board member Isabel Schnabel suggested that inflation is increasingly likely to ease back to the 2% target and dropped her usual warning that rates must not be cut too early. The French finance ministry is considering an 8.5% temporary extra tax on companies with more than €1 billion ($1.1 billion) in revenue and a tax on stock buybacks equal to 8% of the nominal reduction in capital, according to Le Monde. President Emmanuel Macron said he supports the temporary corporate levy. In local currency terms, the pan-European STOXX Europe 600 Index ended 1.80% lower as an escalation of conflicts in the Middle East made investors cautious. Major stock indexes also fell sharply. Italy’s FTSE MIB dropped 3.26%, France’s CAC 40 Index declined 3.21%, and Germany’s DAX lost 1.81%. CHINA The value of new home sales by the country’s top 100 developers fell 37.7% in September from a year ago, accelerating from August’s 26.8% drop, according to the China Real Estate Information Corp. However, market sentiment improved after three of China’s largest cities relaxed home buying restrictions on the back of the central government’s extensive stimulus package unveiled the prior week. On Sunday, Guangzhou became the first so-called Tier 1 city to remove all restrictions on home purchases. Shanghai, China’s financial centre, and Shenzhen, the country’s tech hub, also announced reductions in minimum down-payment ratios for first and second homes in an effort to stoke demand. The private Caixin/S&P Global survey of manufacturing activity eased to 49.3 in September from the prior month’s 50.4, its lowest reading since July 2023 and below economists’ forecasts. The Caixin services PMI fell to 50.3 from 51.6 in August but remained in expansion. China’s factory activity contracted for the fifth consecutive month amid weak demand. The official manufacturing Purchasing Managers’ Index (PMI) rose to an above-consensus 49.8 in September from 49.1 in August, according to the country’s statistics office but remained below the 50-mark threshold separating growth from contraction. The manufacturing PMI has now been in contraction for all but three months since April 2023, according to Bloomberg. The nonmanufacturing PMI, which measures construction and services activity, fell to a lower-than-expected 50 in September, its lowest level in 21 months. Chinese stocks surged in a holiday-shortened week as optimism about Beijing’s comprehensive support measures offset disappointing data. The Shanghai Composite Index gained 8.06%, while the blue-chip CSI 300 Index rose 8.48%. In Hong Kong, the benchmark Hang Seng Index climbed 10.2%, according to FactSet. |
| Sources: T. Rowe Price, Wells Fargo, National Bank of Canada, MFS Investments, Reuters, TD Economics, M. Cassar Derjavets. |
