The labor market showed surprising resiliency this week while Richmond Fed President remarked he’s more concerned about inflation than the labor market. This week’s data: higher-than-expected job openings (indicating hiring is rebounding?), ADP employment report higher than expected (+143,000 jobs, cooler than the 200,000 recent average), ISM services sector activity jumped to a 1 ½-year high and lower-than-expected trade deficit. The service sector (2/3 of the US GDP) continues to show strength as leisure and hospitality (again) leads the way in job creation.

Speaking of GDP, the Atlanta Fed’s GDPNow estimate for the just completed Q3 is 2.5%. Fed Funds futures markets now predict a 68% chance of a 25 bp cut in November (note that 2 weeks ago it indicated a 50% chance of a 50bp cut). Job market strength contributed to an increase in Treasury yields, with the 10-year starting the week at 3.75%, now at 3.85%. Markets will be closely watching tomorrow’s monthly jobs report for clues to the Fed’s direction (and wondering how much those closely watched statistics will be revised in the coming weeks). Stay tuned…

By David R. Pascale, Jr., Senior Vice President at George Smith Partners.