September jobs report: "When the risks are two-sided, you're in good position"

Alexa Hanelin (0:04)

Welcome to JPMorgan's Making Sense. I'm Alexa Hanelin on the US rate sales team here, and today I'm joined by Mike Feroli, our Chief US. Economist, to talk about his takeaways from today's job report, as well as the path ahead for the economy and for the Fed. Today we saw a headline missed, but there's much more to the data that meets the eye. Mike, thanks for joining us.

Michael Feroli (0:23)

Thanks for having me.

Alexa Hanelin (0:24)

So, let's start with the employment report from this morning. Give us your first read on the report. What stands out to you?

Michael Feroli (0:29)

Yes, I think if you just look at the two major numbers, the 29,000 job growth and the increase in the unemployment rate, you might say this is a bad report. But I think when you look at the details, it's actually not that bad. Clearly, we're not accelerating. This isn't a booming job market, or at least in September. But it wasn't that bad, right? So, three-month average job growth is now around 50,000, which is probably right around trend job growth, given slower labor supply.

The unemployment rate increased three basis points. It barely rounded up to 4.2 percent. And a lot of that occurred on the back of a big increase in participation, bringing an influx of new labor force participants. So, overall, it was a little softer, but it wasn't certainly anything that gets us too worried.

Alexa Hanelin (1:11)

Was there anything notable under the hood in terms of the composition of job growth?

Michael Feroli (1:16)

Not too surprising. There was some softness in government. We continue to see job gains in health care slow, but there weren't really big surprises to the upside or downside when we looked at the industrial composition of job growth last month.

Alexa Hanelin (1:28)

Yeah, so we're still in this low-hire, low-fire space for the labor market. Let's talk a bit about the consumer. You've written about this quite a bit with your team. Consumer confidence looks depressed if you look at the surveys, but then spending numbers and consumption are strong. How do you reconcile these two cross-currents?

Michael Feroli (1:44)

You know, this has been really a puzzle for a lot of this expansion, which is consumer confidence and sentiment measures have been near recession levels and yet we continue to have pretty decent gains in spending. There is some speculation that changes in the survey methodology, along with more politically polarized responding behavior, has also kind of polluted the message that we get from these surveys. So, overall, we're not putting perhaps as much weight as we used to historically in terms of thinking about forward-looking implications for consumer spending.

Alexa Hanelin (2:14)

And are we thinking differently on the savings rate and whether that drawdown in the savings rate is reflective of the wealth effect or a crunch for the consumer?

Michael Feroli (2:23)

Yeah. So, one of the better pieces of news we got this week was there was a decent upwork revision to the saving rate. That being said, the trajectory is still pointing downward. We believe that most of that is likely due to the wealth effect, right? Stock market is booming, has been booming at least, and that allows people to need to put aside less to prepare for future needs.

So, we think that's probably a big part of the decline. That being said, there may also be, given the increase in food and energy prices this year, that probably has also squeezed some lower-end consumers, and that also has probably contributed to the lower saving rate.

Alexa Hanelin (2:57)

Yeah, it's a very interesting point, sort of a shift in what we're hearing from sentiments versus what's actually been going through in the data.

How about we touch on some Fed speak that we got this week? We heard from Jefferson and Williams, the TRECA, two of the three. When you put their comments together, what was the common message?

Michael Feroli (3:13)

Yeah, so both Williams and Jefferson basically said there's no urgency. We're still focused on inflation, but having just acted in September, there's really no urgency to act again soon. They can take their time in assessing the trends, which I think most people's ears clearly sounded like they were pushing back against a hike at the end of this month.

It doesn't mean, I don't think that we're out of the woods when it comes to further rate hikes, but I just think they want to take their time a little bit here. And perhaps the center of the committee got a little surprised by the market really running away with placing heavy odds on October when they didn't think that was appropriate.