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The effects of the Delta variant were apparent in September’s disappointing job report which showed a gain of only 194,000 jobs. Government jobs actually contracted, although there are statistical quirks regarding school hiring, and service sector growth was weak as some travel and leisure areas took a hit from COVID-related fears. It seems likely this is a temporary setback as hiring plans remain strong and average hourly earnings are up 4.6% year over year.
Unfortunately, the self-inflicted charade known as the debt ceiling has taken center stage this month causing some ripples in the short-term Treasury market. As we write, the Senate has approved a kick the can approach moving the deadline out until at least December. All indications are that the House will do so shortly. One can only hope the December deadline will produce a longer than two-month solution to this issue.
The Federal Reserve (Fed) was clearly hoping for a more robust jobs report, but the reported growth and the move in the unemployment rate down to 4.8% from 5.2% in August is probably enough to allow the Fed to formally announce its tapering plans at the next Federal Open Market Committee meeting in November.
There are hopeful signs that the worst of the Delta strain is behind us. International travel is scheduled to reopen helping hard hit sectors of the economy. Supply chain backups are hindering consumer spending as well as factory production lines across numerous industries. However, strong wage growth, pent up consumer demand and record corporate liquidity all point to stronger economic activity during the final quarter of the year.
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