MICHAEL J. HALLORAN, CFA | Equity Strategist of Janney Montgomery Scott
Wyncote Wealth Management Group

Highlights for this week include: 

• The August employment report showed an encouraging increase in the number of industries with job gains, while total hours worked in the private sector rose, both suggesting job growth should continue. 

• The NFIB Small Business Optimism Index edged down in August but remained above its long-term average. The NFIB noted that Main Street owners remain largely positive in the health of their own businesses. 

• The Iranian conflict and higher energy prices continue to present headwinds for the market. We note there are important differences today compared to previous oil shocks, led by U.S. energy independence, discussed below. 

August Employment Report Consistent with a Healthy Economy 

Last week, we noted that the August business surveys were consistent with an acceleration of economic growth in the third quarter. Last Friday’s release of the August labor market report was also consistent with a healthy economy. Payrolls rose to a much better than expected 162,000 in August and were revised up by 55,0000 for the prior two months. This puts the average monthly payrolls up a solid 71,000 in the last three months. The report showed an encouraging increase in the number of industries with job gains while total hours worked in the private sector rose, both suggesting job growth should continue. 

A healthy labor market provides the key support for consumer spending, which is the major driver of the U.S. economy. Importantly, the increase in hours worked coupled with higher average hourly earnings indicates strengthening purchasing power in August. Private payroll income rose 0.67% month-over-month, faster than July’s 0.16% pace. On a 3-month change basis, private payroll income rose an annualized 4.7%, implying gains in purchasing power after accounting for recently higher inflation. 

Weekly unemployment claims confirm the positive August labor market report. Claims are arguably the best labor market indicator and remain at a historically low level of 206,000 and in a downtrend. 

Small Business Optimism Remains Above the Long–Term Average 

Small businesses are a major driver of the economy and a useful proxy for middle-income consumer conditions. Consequently, we pay close attention to small business sentiment readings, and the NFIB Small Business Optimism Index is an important one. While it edged down in August, this was after July’s reading reached its highest level since August 2025. The index also remains above its long-term average. The NFIB noted that while expectations for the overall economy dimmed, Main Street owners remain largely positive in the health of their own businesses. 

Thoughts on the Ongoing Iranian Conflict and Higher Energy Prices 

The Iranian conflict and higher energy prices continue to present a headwind for the market. While recent U.S. recessions, excluding the pandemic downturn, were preceded by a sharp rise in oil prices, we note there are important differences today compared to previous oil shocks. 

1) Energy intensity of the U.S. economy is much lower today. The amount of oil necessary to produce one unit of US GDP has fallen by about 70% since 1980. This is partly because the U.S. uses more natural gas and renewables in its energy mix than in the past, and because the overall energy intensity of the economy has declined. 

2) The U.S. is energy independent and is now a much more balanced economy as a result of the shale oil and gas revolution. While high oil prices are still a tax on the consumer, many industries benefit from U.S. oil and gas production, while significant wealth that was transferred to other oil-producing nations now stays in the U.S. 

3) U.S. energy exports benefit the U.S. directly in the form of higher export revenues and benefit the rest of the world because U.S. shale producers can increase production to make up for decreased production elsewhere. This is highlighted by U.S. natural gas production, which has displaced Russian gas in Europe since the invasion of Ukraine. As a result of the Iranian conflict, European and global gas prices have spiked while U.S. gas prices have seen a muted response. This is a relative benefit to U.S. consumers and businesses. 

4) We also note that the U.S. economy remains healthy, six months into the conflict. The recent business surveys, labor market reports, and corporate profits are all consistent with a healthy economy. This suggests the U.S. economy has been well-positioned to absorb the fallout from the crisis. 

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