US Labor Report and French Fiscal Crisis Dominate Markets
Psagot Investment House analysts analyze the US September jobs report, the debate over Federal Reserve interest rate hikes, and escalating fiscal pressures in France.
Psagot Investment House analysts have released their weekly economic review, focusing on the prospects of a US interest rate hike in December, the local labor market, and broader macroeconomic trends.
US Labor Market Signals and Inflation Debate
The debate over US inflation has grown increasingly complex following the September employment report. For those tracking the core indicators, the discussion centers on whether supply-driven inflation from tariffs, chip shortages, and oil will transition into demand-driven inflation, posing a significant challenge for the Federal Reserve. The employment report delivered figures that were better than expected yet insufficient to decisively settle the debate.
The US economy added just 29,000 jobs in September, falling short of all consensus forecasts, while data for the previous two months was revised downward by 60,000. Furthermore, July's figures were revised to show a loss of 10,000 jobs rather than the previously reported gain of 21,000.
Wage Growth and Sectoral Shifts
Consequently, the six-month moving average of monthly job creation dropped to 66,000 from 97,000. More importantly, the report's primary surprise stemmed from wages. Private sector hourly earnings rose by a mere 0.1% in September, compared to expectations of a 0.3% increase, bringing the annual wage growth down to 3%.
In other words, anyone looking for workers leveraging a hot market to demand wage hikes offsetting inflation pressures did not find them. On the other hand, this does not yet indicate an economy with sufficient slack to absorb inflationary pressures that remain persistent.
Sectoral analysis revealed that the private sector added 46,000 jobs, while the government sector shed 17,000, largely driven by local authorities trimming back after August spikes. Healthcare and education continued to lead job creation with a gain of 20,000 positions.
European Debt and French Fiscal Crisis
Meanwhile, the upcoming French presidential elections and mounting debt concerns have thrust European markets into focus. The yield on 10-year French government bonds surged significantly, widening the spread against German bunds to levels unseen since the European debt crisis.
France's fiscal deficit remains a central concern, with debt approaching 120% of GDP. Without substantial intervention, the deficit is projected to climb from 5.4% this year to 6.5% in 2027, testing the limits of European Central Bank policy and regional market stability.
