September jobs report: "When the risks are two-sided…

PodcastMaking SenseMichael FeroliOct 2

The guest describes September job growth as soft but near trend given slower labor supply, while arguing that consumer surveys may no longer reliably signal spending. He points to the wealth effect, fading fiscal support, and AI investment and consumption as influences on demand. With core PCE inflation revised to 3.0%, he sees the Fed's next steps as uncertain: soft inflation reports could support an extended hold, while Taylor-rule estimates could point to more than one hike.

Labor Market Monetary Policy Inflation

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Key Takeaways

The guest describes September job growth of 29,000 and a three-month average near 50,000 as soft but not alarming, given slower labor-supply growth. He says the pace of Fed hikes signals how much the Fed is willing to balance employment against inflation.

The guest says consumer confidence and sentiment remain near recession levels even as spending has continued to rise, and argues that survey changes and politically polarized responses may have weakened their value as spending indicators. He attributes much of the lower saving rate to the wealth effect from a booming stock market, including AI-stock gains, while also noting that higher food and energy prices may have squeezed lower-end consumers.

The guest says revised core PCE inflation of 3.0% year over year was below the 3.2%–3.3% range he and Fed officials had expected, raising the bar for a September CPI report to put an October hike back in consideration. He sees the Fed outlook as uncertain: two inflation reports before December could support an extended hold, while Taylor-rule estimates could imply more than one hike, and the hold could last into 2027.

ECONOMY

Jobs Trend — The guest characterizes September's jobs report as soft but not alarming. Job growth was 29,000, and the three-month average was around 50,000—probably near trend, he says, given slower labor supply.

“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…”—

Survey Signals — The guest says consumer confidence and sentiment have remained near recession levels despite continued spending gains. He argues that changes in survey methodology and politically polarized responses may have weakened the surveys as forward-looking indicators of consumer spending.

“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…”—

Saving Rate — The guest attributes much of the decline in the saving rate to the wealth effect: a booming stock market can reduce the need to save for future needs. He adds that higher food and energy prices may have squeezed lower-end consumers and contributed to the decline.

“We believe that most of that is likely due to the wealth effect. Right?…”—

Jobs And Consumer Spending

Faroli says September job growth was soft but near trend given slower labor supply, while consumer surveys appear less useful than actual spending data and wealth effects help explain saving patterns.

Fed Rate Path

Fed officials signaled no urgency to act after September, while softer inflation revisions could keep October off the table; Faroli still expects a December hike and sees the pace as informative about the Fed's priorities.

AI Investment And Treasury Yields

Faroli says fiscal support is fading, but AI-related investment and equity gains are supporting demand; strong growth and fiscal sustainability concerns are both contributing to higher rates.

Two-Sided Fed Risks

With two inflation reports before the December meeting, soft data could lead to an extended hold, while Taylor-rule estimates suggest the Fed may need to hike more than once.