An Eye on Jobs

With recent economic data showing some weakness, Federal Reserve officials are now pivoting to rate cuts. Inflation has steadily decreased over the past year, but there are signs of trouble in the labor market. At this week’s Jackson Hole Economic Symposium, Chairman Powell declared, "The time has come for policy to adjust.” Markets have been expecting rate cuts for several weeks and climbed further after his comments. Notably, and in contrast to the early part of the year, stocks across various sectors are now moving higher.

A strong labor market has been the backbone of the U.S. economy for several years. However, there is growing concern that the labor market might be deteriorating faster than anticipated. Revised data shows the U.S. added 810,000 fewer jobs than previously thought over the last 12 months. Although starting from a low base, ongoing jobless claims and permanent job loss have been steadily increasing. With inflation seemingly under control and the Fed also responsible for maintaining full employment, it makes sense to shift to a more relaxed policy. 

Interest rates have been higher than inflation for some time, and it’s unclear how much damage this has done to the labor market. However, the market currently views rate cuts as a positive for stocks. Over $6 trillion is on the sidelines, sitting in money market accounts. As rates decrease, some of this money could shift to stocks. If the economy remains stable and companies meet their earnings targets, this could support further stock market gains. 

Still, we are mindful that unemployment is rising, and consumers are feeling the strain. Focusing on quality and essential goods and services remains a priority. We are optimistic that productivity can increase as companies find ways to leverage new technology like artificial intelligence, but we need to see this reflected in the data. The next few earnings reports will be very important.

Thanks,
Preston May, CBE®
Research Analyst

Click here for print-friendly version.