Weekly Economic Update 11-3-23: Employment; Consumer Confidence; ISM Manufacturing & Services; and Productivity

The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the views of the Georgia Institute of Technology or the Georgia Board of Regents.

Earlier today I had the privilege of presenting an economic update to the TechCXO annual Partners Meeting in Atlanta. I want to thank Paul Sansone, a TechCXO Partner (and a former classmate in the Leadership Gwinnett class of 2006-07) for reaching out and inviting me to speak. It was a great group and I hope they found something useful in my comments.

The economic news this week was dominated by the meeting of the Federal Reserve Board of Governors meeting where, to no one’s surprise, they decided to keep interest rates constant. There is starting to be some sentiment that the Fed is done with their rate-hiking cycle and from here it will be rate cuts in 2024. I’m not so sure. Powell and company seem to be married to the idea of a 2% target for inflation and we are FAR from that number. Further, the Fed seems to be sending a strong signal to Congress to stop their out-of-control spending. Of note, the total federal debt has increased $1.6 trillion since the “debt ceiling” vote in May…$1.6 trillion in only 5 months! Anyone want to bet on congress re-gaining some sort of fiscal control? I didn’t think so. Rate cuts would fly in the face of everything the Fed is trying to accomplish against very strong headwinds. Short of a significant recession, I don’t see rate cuts on the horizon. (And yes, I realize I am in the minority in that opinion, but what else is new…..)

Employment & Wages

This week brought us a lot of data on the status of the labor market. First on our list is the Job Openings and Labor Turnover Survey (JOLTS) released by the Bureau of Labor Statistics (BLS). They reported that job openings rose for the second consecutive month to 9.6 million. That is 3.2 million more openings than there are unemployed people in the labor force. (Keep in mind that you are only considered “unemployed” if you are actively seeking employment.) Over the summer it looked like the labor market was returning to normal, but for the last two months, that has reversed.

However, the JOLTS report suggesting a tightening labor market is in direct conflict with other data we have on the economy, including the ISM Manufacturing index, the ISM Services index, and the monthly employment report all discussed below. The BLS has admitted that the response rate to most of its labor surveys has collapsed in recent years, with the worst being the JOLTS report where the response rate is now a record low 31%. Even the markets seem to be brushing off the report as it had zero impact on rates, while the much more negative ISM employment numbers and the ADP report moved rates to session lows.

Data on employment costs for the third quarter were also released this week. The Employment Cost Index (ECI) increased 1.1% in the third quarter, slightly faster than the 1% economists were expecting. This is the ninth quarter in a row that employment costs have risen by 1% or more. On a year-over-year basis, the ECI was up 4.3%, and while that is trending down, it is still well above the pre-pandemic trend and higher than it has been since 2000. And that is BEFORE you consider all the recent wage concessions won by the UAW against the big three automakers, or the other significant wage increases won by UPS drivers, airline stewards, health care providers, etc. The wage increases will make it easier for households to deal with recent inflation, but they will also be inflationary in their own right as now the price of cars, shipping, airline travel, and healthcare will rise to cover these costs….an inflationary spiral.

Finally, this morning we got the much awaited October jobs report and what a report it was! The economy only added 150K jobs and the previous two months were revised DOWN 100K jobs! These downward revisions are getting ridiculous. Eight of the past eight months have been revised significantly lower. If I was cynical, I might think that the initial numbers are little more than political propaganda designed to make the economy look good before quietly revising the number down. But that can’t be it. Maybe the BLS data collectors are just bad at their job. In any event, clearly the trend in payroll employment is down. (The fact that the UAW was on strike for much of the month didn’t exactly help these numbers either.)

Given the 150K rise in payrolls, the divergence between the payroll and household survey continued to worsen as household employment DECLINED by 348K jobs! As a result, the number of unemployed rose by 146K and the unemployment rate ticked up to 3.9%. (The better measure of unemployment, U-6, which includes people who are underemployed, marginally attached to the workforce, and have given up looking for work, rose to 7.2%.) In addition, the number of people who were working part-time for economic reasons rose 191K to 4.2 million…the highest level since the end of the pandemic. Not sure this supports the position of a tight labor market.


According to the BLS, the productivity of American workers rose at a 4.7% annualized rate in the third quarter. Economists were expecting a 4.3% decrease. Unit labor costs fell 0.8% in the third quarter. Economists had forecast a 0.7% gain. (Really makes you wonder about economists…they didn’t only miss it…they missed the direction!)

But this isn’t surprising. We are supposed to believe that despite declining real wages, negative real retail sales, declining home sales, significantly slowing full-time employment, and increasing part-time employment, the economy actually grew 4.9% in the third quarter. Well, the only way that could possibly happen is if those part-time, under-paid workers were working their tail off! And it appears they were! According to the BLS, output was up 5.9% in the third quarter while hours worked only rose 1.1%!

ISM Manufacturing and Services

The ISM Manufacturing Index dropped to 46.7 in October, well below expectations. According to the report, “manufacturers cut employment for the first time in over three years as workloads were reportedly insufficient to warrant additional hiring or the replacement of voluntary leavers.” (But, again, that’s OK, because the people they kept were working real hard and being super productive!) New orders and employment both fell as the prices manufactures face increased.

According to the report, “the past relationship between the Manufacturing PMI and the overall economy indicates that the October reading (46.7) corresponds to a change of -0.7% in real gross domestic product.” What?!? But, last week we were told that the economy was on fire and growing at 4.9%! Interestingly, the Atlanta Fed just came out with its second Q4 GDP forecast…only 1.2%! On October 27th, they were forecasting 2.3%. Just 5 days later they cut the growth forecast in half! Wonder what they know….

The services index didn’t fare much better. While still above 50, it dropped for the second month in a row. The components of the index showed that prices paid by service industries were considerably higher than expected, while employment in the service sector was notably worse than expected. That is consistent with what we got from the employment report.

Consumer Confidence

The Conference Board consumer confidence survey fell for the third straight month in October. Confidence in the present situation dropped for the fourth consecutive months as consumers continue to be preoccupied with rising prices, particularly for groceries and gas. They also expressed concerns about the domestic political situation, higher interest rates, and an expanding war in the middle east! Clearly, there is a lot to dampen the confidence of consumers…not only in the present, but in the future as well. Future confidence also dropped for the third consecutive month to its lowest level since May.

Final Comments

It has taken a while, but rising interest rates are starting to have a significant impact on the macro economy. Interest payments are starting to cut into the profits of corporations as debt is rolled over at much higher rates. That is going to show up in the labor market. Further, households are getting squeezed as interest on credit cards, auto loans, etc. keep going up. Edmunds recently reported that 17% of car purchasers now have monthly car payment in excess of $1,000. Three years ago that number was 7%. And Google is reporting that Americans searching for “give car back” on the internet has soared to a record high. (Pretty sure you can’t do that….I think they just come repossess it eventually….) Further, the percent of sub-prime auto loans that are at least 60 days late is now the highest recorded.

And it isn’t just the private sector. This month, the annualized debt payments for the U.S. government officially surpassed $1 trillion. It is simple math…you can’t spend forever without going bankrupt. Both household and government spending will eventually have to stop, and when they do, the economy will experience a significant pull-back. The question is, “when?” Frankly, I am surprised we have made it this long.