Strong Labor Market Supports Resilient Consumer Spending

The labor market in the US is expected to remain strong, with healthy job gains and low unemployment rates. According to RBC economists, nonfarm payrolls have been printing above breakeven employment levels since the start of the year, pushing the u-rate lower.

For September, they expect another solid 83K print in jobs, driven by growth beyond healthcare into the goods sector. This trend is expected to continue with a backdrop of continued retirements and minimal immigration contributing to low unemployment rates.

The trend of slowing wage growth (3.1% y/y) may be overshadowed by average weekly earnings, which ticked up to 3.7% y/y in August. The BEA personal income and spending report on Wednesday will provide clues on consumer health, with real personal spending expected to rise 0.6% m/m in August.

With inflation risks rising, the August PCE print will draw close attention. RBC expects core PCE to rise 0.2% m/m and headline PCE up 0.3% m/m, offset by airline fares. Methodology changes to three PCE deflator series will bring a downward shift to the annual pace of PCE inflation.