Update 822 – Last Data Before the Decision
Contextualizing the October Jobs Report
In the final days of the 2024 campaign season, the three notable macroeconomic data drops we saw this week will become voters’ last impressions and focus of economic talking points as candidates close out their cases. The October jobs report, released this morning, showed an incredibly soft 12,000 jobs added to the economy last month — but this number reflects not the underlying condition of the economy as much as unique and passing disruptions related to recent hurricanes and the Boeing strike. The Trump campaign, of course, wasted no time in politicizing the report and attempting to blame Harris for a weakened economy.
But as we note below, this argument is without merit — the economy remains remarkably strong. The soft but idiosyncratic October jobs figures will likely be a one-off. And this week’s figures show stunning success in subduing inflation. We contextualize all of this week’s major macroeconomic data and dispel misleading rhetoric below.
Good weekends all…
Best,
Dana
This week, three key pieces of economic data were released – the advanced estimate of GDP in the third quarter, the personal consumption expenditures (PCE) price index for September, showing inflation over the month, and the October jobs report. They show that economic growth remains strong, consumer spending remains high, inflation continues to fall, and the labor market has slowed slightly, but remains solid. Job growth has slowed but by significantly less than it may appear based on headline numbers.
The October jobs report – which shows that 12,000 jobs were added to the economy last month, the smallest monthly job increase since December 2020 – is gaining the most attention following its release this morning. It is crucial to note that significant and temporary disruptions led to far slower job growth last month than would have otherwise been seen.
As the economy remains the primary issue for Americans ahead of next week’s election, the Trump campaign quickly attempted to politicize the report and misrepresent it as “a catastrophe” that “definitively reveals how badly Kamala Harris broke our economy.” The jobs report and this latest economic data will continue to feature in both candidates’ discussions of the economy in the coming days as each makes the case that they are the more competent steward of the American economy over the next four years.
The data releases also come ahead of the next week’s Federal Open Markets Committee (FOMC) meeting. On Wednesday and Thursday, the FOMC, the Federal Reserve’s interest rate-setting committee, will convene to decide the fate of interest rates. The FOMC began raising the federal funds rate from near zero in early 2022 in an effort to combat rising inflation. The Committee raised rates to the 5.25 to 5.5 percent range and opted to hold rates steady at that elevated level from last July to September of this year when the Committee finally decided to cut rates by 50 basis points to the 4.75 to 5.0 percent range.
Head Fake: Disruptions behind October Jobs Figure
Total nonfarm payroll employment rose by roughly 12,000 jobs and the unemployment rate remained steady at 4.1 percent last month. The new data was included in the October jobs report released by the Bureau of Labor Statistics this morning.
Job gains in October came in soft due to two major disruptions over the last month: labor action, as Boeing employees took to the picket line, and extreme weather, as Hurricane Helene and Hurricane Milton devastated Florida, Georgia, and North Carolina.
The Boeing strike led to a temporary reduction of manufacturing jobs. Manufacturing employment decreased by 46,000 in October, reflecting a decline of 44,000 in transportation equipment manufacturing that was largely due to strike activity. As Boeing has reached a tentative agreement with the union, the ongoing strike could end soon if workers approve the deal next week. This could result in a large rebound in manufacturing jobs in November’s jobs report. The two recent hurricanes temporarily stopped work in some affected areas.
Job growth in September was revised down by 31,000 jobs from +254,000 to +223,000 jobs, while job growth in August was revised down by 81,000 jobs from +159,000 to +78,000 jobs. This brings the average monthly jobs gain over the past three months to a strong 104,000 jobs.
Source: Council of Economic Advisers
In October, job gains increased for the forty-sixth consecutive month. The largest gains came in:
- health care (52,000 jobs)
- government (40,000 jobs)
Jobs were lost over the month in the temporary help services industry.
Last month, the unemployment rate remained steady at 4.1 percent, on par with unemployment in September and down from 4.2 percent in August and 4.3 percent in July. Unemployment remains historically low.
Fed’s Preferred Inflation Gauge Falls to 2.1%
The Fed’s preferred measure of inflation, the PCE price index, rose by 2.1 percent on an annualized basis in September, falling to only slightly above the Fed’s target of two percent. This is down from a 2.3 percent annualized increase in prices in August and a 2.5 percent annualized increase in prices in July. The new inflation data was released by the Bureau of Economic Analysis on Thursday.
Core PCE – which strips out food and energy prices – rose by 2.7 percent on a year-on-year basis last month, on par with the year-on-year increases in core PCE in both August and July.
Source: Council of Economic Advisers
Headline PCE rose by just 0.2 percent on a monthly basis in September, slightly up from the 0.1 percent increase in prices on a monthly basis in August. The price increases over the past few months are notably down from those seen in the first four months of this year when prices rose by 0.3 percent in April, February, and March respectively, and by 0.4 percent in January. Core PCE, meanwhile, rose on a monthly basis by 0.3 percent last month, slightly up from the 0.2 percent month-on-month increases in August, July, and June.
The overall 0.2 percent increase in prices in September came as prices for goods fell by 0.1 percent and prices for services rose by 0.3 percent. Energy prices fell by 2.0 percent while food prices rose by 0.4 percent.
U.S. Economy Grows by 2.8% in Third Quarter
The United States economy grew by a healthy 2.8 percent on an annualized basis in the third quarter of 2024 according to the advanced estimate released by the Bureau of Economic Analysis on Wednesday. The strong but marginally weaker-than-expected GDP growth comes after the American economy grew by 3.0 percent on an annualized basis in the second quarter of 2024.
Source: Council of Economic Advisers
The deceleration in growth in the third quarter compared to the second quarter primarily reflects a modest downturn in private inventory investment and a larger decrease in residential fixed investment.
GDP growth over July, August, and September was a function of increases in consumer spending, exports, and federal government spending over this period. The increase in consumer spending over the previous three months reflected an increase in spending on both goods and services. Imports, which are a subtraction in the calculation of GDP, increased by 11.2 percent in the third quarter, offsetting an 8.9 percent increase in exports.
The second estimate of GDP for the third quarter, based on more complete data, will be released on November 27.
Looking Ahead
As the Presidential candidates incorporate the new economic data into their closing arguments, one thing is clear: the incoming administration will inherit a strong economy that has been remarkably resilient in the face of over a year of elevated interest rates. Inflation will likely continue to fall as growth and the labor market remain strong, while the Fed lowers interest rates,possibly to pre-pandemic levels.
Additionally, this week’s economic data suggests that – with inflation moving toward the Fed’s two percent target and the underlying labor market remaining resilient as interest rates remain elevated – the FOMC is inclined to cut interest rates once again by at least 25 basis points when it meets on the two days immediately following Election Day next week.