KUWAIT: US employment unexpectedly surged in September, continuing to illustrate a resilient labor market acting as a key source of strength for household spending and the broader economy. Nonfarm payrolls increased 336,000 last month while the unemployment rate held at 3.8 percent, and wages gained at a modest pace. Data for August was revised to show 227,000 were added instead of the previous reading of 187,000.Average hourly earnings increased 0.2 percent last month, up 4.2 percent from a year earlier, marking the smallest annual advance since mid-2021.

While the data showed no drag on the labor market from the recent strikes that will probably change with the October employment report. Looking at the Fed, the labor market’s strength threatens the central’s banks progress on curbing inflation. The figure, alongside other data like the recent pickup in job openings, bolsters the case for another interest rate hike this year. The Fed’s rate is already at a 22-year high at 5.25-5.5 percent, and most central bank officials expect one more increase in 2023 and a slower pace of cuts over the next two years.

Market expectations rose to a 32 percent probability of a 25 bps hike by the Fed at the next meeting, up from a 22 percent probability prior to the release of the jobs data. The data lead to a short-lived gain in the dollar, which sent the euro briefly below the 1.05 level. Looking at bonds, the yield on the 10-year Treasury rose to 16-year highs and stock futures dropped as investors’ worry that interest rates will stay higher for longer. The policy-sensitive 2-year Treasury bond yield spiked to 5.15 percent after the report and later moderated.

Manufacturing & services

The US manufacturing sector saw a slight improvement in September 2023, with the PMI rising to 49 from 47.6. Despite the gain, the manufacturing sector has been in contraction for the eleventh consecutive month and continues to face challenges. On a positive note, the figure marked the third straight month of improvement by the Institute for Supply Management, which strengthened expectations that economic growth accelerated in the third quarter despite higher interest rates. Accounting for more than two-thirds of the economy, the US services sector slowed in September as new orders fell to a nine month low.

The ISM reported that its non-manufacturing PMI slipped to 53.6 last month from 54.5 in August, in line with expectations and well above the 50-expansion level. Demand for services is being supported by a shift in spending away from goods amid higher interest rates. Growth estimates for the third quarter are as high as 4.9 percent, while the economy grew at a 2.1 percent pace in the second quarter.

Swiss inflation quickens

Swiss inflation accelerated in September, marking a significant turnaround. Consumer prices rose 1.7 percent y/y, up from 1.6 percent the previous month. The increase was mainly due to leisure-time courses, fuel, heating oil, clothing, and footwear – all in the lead up to the winter season. Meanwhile underlying inflation, which strips out volatile elements like energy, slowed to 1.3 percent from 1.5 percent. After falling in the summer, the Swiss National Bank expects price pressures to amplify in the coming months, potentially crossing the central banks two percent ceiling.

Although the central bank delivered significant hikes last year, higher costs of electricity, rents and public transport, alongside a boost of value-added tax backed the rebound in inflation. Power prices alone are set to raise an average 18 percent in January. Moving forward, economists expect inflation to peak at 2 percent in the fourth quarter. After surprising markets by pausing its rate hikes last month, the SNB may opt for another increase in December. Still, Swiss inflation remains among the lowest of any advanced economy.

Kuwait

Kuwaiti dinar USD/KWD closed last week at 0.30900.