Insights on Treasury yield moves, the September jobs report, Federal Reserve policy and the midterm elections.
This week, my travels took me from Boston to Minneapolis and then on to San Francisco. As I write, I am sitting in an airport waiting through yet another delay. Despite the travel hassles, one observation stood out: each city felt remarkably alive. Restaurants were busy, airports were crowded, and people were moving with purpose. There was certainly some anxiety in the mix, but there was also plenty of energy and activity.
Another observation was impossible to miss. Advertising throughout the airports was dominated by AI companies promoting products that, in many cases, seem difficult to explain but were nevertheless everywhere. I ordered coffee and meals entirely through self-service touchscreens. Times, they are a-changin’.
This week, the market narrative was dominated by the relentless rise in bond yields. The 10-year U.S. Treasury yield climbed as high as 5.34% before retreating to roughly 5.27% as of this writing. Oil prices remain elevated, and large Treasury issuance to finance existing debt and government spending continues to keep inflation concerns front and center. Investors have taken notice. Equity markets wobbled as higher yields forced a renewed discussion about valuations. As I wrote last week, bond markets are often prescient, quietly signaling economic and market shifts before they become broadly recognized.
Then came today’s employment report. September payroll growth totaled just 29,000 jobs, well below expectations of 90,000, potentially giving the Federal Reserve reason to pause further interest-rate increases. Revisions also reduced July and August payroll gains by 31,000 and 29,000 jobs, respectively.
Beneath the headline numbers, private-sector payrolls increased by 46,000, while government employment disappointed, led by a decline of 16,000 state and local government jobs. Most sectors experienced slower hiring than in August. One encouraging development is that manufacturing employment continued to grow. Meanwhile, employment in the information and financial services sectors, which have significant exposure to AI-related disruption, continued to contract. The unemployment rate edged up to 4.2% as labor-force growth outpaced gains in household employment.
Wage growth also continued to moderate. Average hourly earnings increased just 0.1% during the month, bringing year-over-year wage growth down to 3%, the lowest level since May 2021. With productivity growth running above 2%, the Federal Reserve can take some comfort that wage pressures are not currently a significant source of inflation.
So, what does all of this mean?
Much like what I observed traveling from Boston to Minneapolis to San Francisco, consumers remain resilient but increasingly concerned. They are trying to determine whether higher gasoline prices, elevated energy costs, geopolitical tensions and higher interest rates are temporary obstacles or signs of more lasting challenges ahead. They continue to work hard, embrace innovation and adapt to new ways of doing things. Yet there is also a sense of fatigue. Many feel they are continually being asked to absorb the consequences of events beyond their control.
What they seem to want most is relief, reassurance and confidence that we are not one policy mistake, geopolitical miscalculation or economic shock away from recession, conflict or worse.
And yet, despite those concerns, we persist.
We adapt to change in our workplaces, our schools, our doctors’ offices, our airports and our communities. We adopt new technologies, navigate new challenges and continue moving forward even when the pace of change feels dizzying.
The upcoming midterm elections will likely reflect a growing desire for accountability on inflation and affordability, as well as increasing debate around artificial intelligence, regulation and technological change. Ultimately, however, many of these issues converge on a single question: How is this economy working for me and my family?
That is the same question we work with you to answer every day.
We do not pretend to have all the answers. What we do believe is that the best foundation for navigating uncertainty is having a thoughtful plan. As we enter the final quarter of the year, now is an appropriate time to revisit that plan. Reviewing portfolio allocations, evaluating the balance between stocks and bonds, maintaining appropriate liquidity, and identifying tax-efficient opportunities to preserve and compound wealth remain important priorities.
But it may also be time to look beyond the portfolio itself. Changes in the cost of living, employment conditions, caregiving responsibilities and family support needs can all have meaningful impacts on long-term financial goals. Ensuring that these realities are properly reflected in your plan is equally important.
This is what we can do, even when the world is changing faster than we can fully understand.
From Boston to Minneapolis to San Francisco, I encountered people who may be worried, but who have not lost hope. They have not lost their determination to build, grow, provide for their families and pursue their aspirations. Like Bob Dylan also sang, may we “build a ladder to the stars and climb on every rung.” If we continue to bring that same spirit to our communities and our decisions, I suspect that, as we have many times before, we will find a way forward.
Written by a human.