Farmers & Merchants Bank

As earnings releases start pouring in this week, they will guide markets on how strong the past quarter’s economic growth has been and what the fourth quarter will potentially be. A 3.0% annualized projected third-quarter U.S. GDP rate is the highest post-pandemic recovery rate since fourth quarter 2021. Supporting that GDP growth projection was a surprisingly strong headline non-farm payrolls (NFP) increase of 336,000 jobs in September (vs. August’s upwardly revised 227,000). This surpassed estimates of 170,000 provided by an estimate from Bloomberg. The NFP two-month net revision was 119,000. However, the household survey portrayed a much weaker labor market with employment in that survey advancing 86,000 for September. The unemployment rate remained at 3.8% as the advancement of Average Hourly Earnings month-over-month slowed to a 2.4% annualized rate while still reflecting wages up 4.2% over the last year.

ISM Services survey showed a pullback in new orders, indicating a softer outlook as the index cooled to 53.6 (vs. 54.5 prior). Down were new orders (-5.7%), inventories (-3.5%), and employment (-4.3%) as businesses became comfortable holding lower inventories due to improved supply chains while being cautious on their outlook for slower consumer spending considering recent higher food and energy costs. Prices paid to U.S. Producers as measured by the Producer Price Index advanced 0.5% this month. Excluding food and energy prices came in hotter than expected with a 0.3% rise for the month, the third consecutive monthly increase.