Weekly Update 9/4/2026: Payrolls Surger
- Palo Alto reports solid quarterly results
- ISM figures indicate growth
While we had only one SGK Core company report earnings, this was a week full of economic data. Investors and the Fed will input these numbers into their various models to try to determine what the economy’s path is going forward. Below is a summary of the week’s important releases. Enjoy the reading!
ISM data
The Institute of Supply Management released its latest figures for manufacturing and services this week. On Tuesday, the ISM manufacturing gauge fell one point to 54.6 in August. If the gauge is above 50.0, economists interpret that as a growth environment. That figure was the second-highest reading since 2022. Fifteen industries reported growth, including primary metals, electrical equipment and appliances. Wood and chemical products reported contraction. Factories in general are benefitting from resilient consumer demand, business investment in the AI infrastructure buildout and government spending on defense goods. Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said the war with Iran and tariffs remain the biggest headwinds. She noted they could be the reason behind softening in new orders, order backlogs and employment. The Bloomberg Intelligence analyst commented that weakness is concentrated in forward-looking demand rather than current production. Lean inventories should keep output supported. This was one of the comments from the survey: “The economy is annoying; it is getting in the way of otherwise good business. We are making great new products but struggling to compete when prices escalate due to things like tariffs and the conflict in the Strait of Hormuz. I fear that the inflation caused by these factors will lead to lower sales and lower spending power of our customers.” — Chemical Product Producer.
On Thursday, the ISM gauge for services was released. It showed that sector expanded in August by the most in six months to 55.4. This data point was even higher than the consensus estimate of 54.1 in a survey of economists by Bloomberg. Similar to the manufacturing measure, a figure above 50.0 is indicative of expansion. Contrary to the numbers revealed in the ISM manufacturing, the services survey showed that new orders growth accelerated to the fastest pace since 2023, and order backlogs expanded for the seventh consecutive month.
JOLTS
The Bureau of Labor Statistics released its Job Openings and Labor Turnover survey on Tuesday, which showed that openings edged higher in July to 7.27 million from a downwardly revised 7.18 million in June. The median estimate in a Bloomberg survey of economists called for 7.31 million openings. The rise in available positions was led by manufacturing, state and local government excluding education and healthcare and social assistance. Layoffs fell to the lowest level since January. There were about 1.1 vacancies per unemployed worker, which suggests the demand for workers remain stable at a subdued level. The so-called quits rate, which measures the percentage of people voluntarily leaving their jobs each month, edged down to 1.9%, down from 2.0% in June. The main takeaway is that workers are increasingly reluctant to walk away from jobs given limited confidence they can find better opportunities elsewhere.
Trade deficit
The U.S. trade gap widened in July to its largest level since early 2025. The gap in goods and services trade grew 24.4% from the prior month to $88.6 billion according to the Commerce Department. On an inflation-adjusted basis, that figure rose to $106.4 billion, also the largest since March of last year. Mechanically, the value of imports increased 2.8% and exports fell 2.1%. The impact behind the figures comes from the major surge in imports of capital goods in the tech sector—computers, semiconductors and telecom equipment. Representing the largest advance since 1993, capital goods rose 11.4%. The trade deficit has fluctuated in recent months as the Iran war helped boost global demand for US petroleum products while American firms try to mitigate supply-chain disruptions. The administration’s tool to help stem the growth in the deficit has largely relied on tariffs, many of which were struck down by the Supreme Court earlier this year. Recently, the U.S. levied 50% duties on billions of dollars of Canadian goods, and Canada retaliated after trade talks fell apart last month. The merchandise-trade deficit with Mexico widened to a record while the deficit with Taiwan, a key supplier of semiconductors and other computer parts, expanded by the most since February. This is a volatile category which can swing by large amounts month to month, but the recent trend suggests that net exports will subtract percentage points from third quarter GDP prints when it is released later this month.
Non-farm payrolls
Yesterday, the Labor Department released data showing initial jobless claims rose 2,000 to 206,000 in the week ended August 29. That was slightly above the consensus reading of 205,000 but well below the 236,000 reading from the comparable week a year ago. Continuing claims for the week ended August 22 rose 8,000 to 1.78 million, but it, too, remained below the year-earlier level of 1.94 million. Separate data out Thursday from employment tracker Challenger, Gray & Christmas showed announced job cuts through August are at the lowest level since 2022. Of the 30 industries tracked, 20 have announced fewer cuts than at the same point last year.
That set the stage for the release of the Labor Department’s closely watched employment report today, which tabulates data from businesses (non-farm payrolls) and households (unemployment rate). The economy created 162,000 jobs last month, way above the 55,000 expected in a survey of economists by Bloomberg. The unemployment rate, meanwhile, stayed constant at 4.1%, which was in line with expectations. The participation rate, which measures the share of the population that is working or looking for work, increased slightly to 61.6% from 61.4% previously. While that latter number can be affected by those entering retirement, prime-age workers, which is participation for those ages 25-54, was unchanged at 83.4%. Average hourly earnings rose 0.3% in July and 3.1% from a year earlier. Both of those figures matched estimates.
Construction added 22,000 jobs, manufacturing added 16,000 positions and health services saw a rise of 28,000 on the payroll. Local government hiring also rose with 42,000 new jobs, reflecting an upswing in the return to school period. The biggest negatives came from information jobs (down 23,000) and financial activities (lower by 11,000). The Bloomberg economics team rationalizes that the upside surprise came possibly from an unusually mild seasonal-adjustment factor possibly due to World Cup effects on leisure and hospitality hiring.
We view the results of this week’s labor readings as suggesting that persistently low layoffs coupled with solid but not spectacular job growth are giving the Fed a pathway to focus on inflationary pressures rather than employment. While August’s number was far above expectations, the average of the past three months is 71,000 jobs created with unemployment steady at 4.1%. That job growth pace is half as fast as the 142,000 average in the spring. The “low hire, low fire” economy remains in force as the calendar turns to the last third of the year.
Now the attention turns to next week’s release of the Producer Price Index (PPI) next Thursday and Consumer Price Index (CPI) next Friday. July’s readings for these metrics were below expectations giving the Fed some breathing room in terms of the pressure to raise rates to fight inflation. Expectations call for a 5.2% yearly rise in wholesale prices and a 3.4% increase in consumer prices. Core numbers for PPI and CPI, which exclude the more volatile food and energy components, both call for readings above the Fed’s 2.0% inflation target. Should expectations turn into reality, there would be little doubt that the Fed would be pressured to lift rates, especially after Fed Chairman Kevin Warsh’s hawkish-leaning speech at the annual Jackson Hole economic symposium within the last few weeks. Fed funds futures are calling for 61% odds of a 25 basis point (0.25%) hike at the September 16 meeting. That is not much better than a 50/50 chance, so next week’s inflation data will be key.
Company Events
SGK writes additional weekly commentary for clients of the firm detailing recent events and earnings of core equity holdings.
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