Oct 11, 2022

Cracks Gradually Form in the Job Market

Weekly Market Commentary

Last week, the U.S. Bureau of Labor Statistics (BLS) reported that job openings fell by 1.1 million in August to 10.1 million, the second steepest decline on record.

Job growth continues, however, as evidenced by a 263,000 increase in nonfarm payrolls in September (U.S. BLS).

Yet, openings remain quite elevated, as illustrated in Figure 1. It’s not that all workers have their pick of jobs, but many businesses have struggled to fill open positions. We see it in the never-ending stream of help wanted signs.

For workers, fewer opportunities could eventually create challenges. For investors, who have been battered by steep rate hikes, a slowdown would be welcome news, as the Federal Reserve is trying to slow the economy and rein in inflation.

As Figure 1 highlights, an expanding economy increases openings as businesses hunt for workers. Declines are typically associated with a weak economy or a recession.

Figure 2 helps explain why so many job openings exist.

Many have tried to explain why some folks have stayed at home vs. pre-pandemic. But pinpointing the precise reason or reasons have been elusive. It is playing a role in today’s labor shortage, it puts pressure on wages, and it is has helped contribute to inflation.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at info@fdpwm.com or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

RELATED POSTS

Two Graphs and a Data Table

The labor market is moving back into balance. No longer do we come across articles touting the Great Resignation. In 2021 and 2022, it was ‘advantage employee.’ Employees still have some leverage, but the pendulum has gradually been swinging back to employers. Of course, this varies from industry to industry, but conditions are generally balanced.

Another Soft Inflation Number Bolsters the Case for Lower Rates

In 2021 and 2022, soaring inflation sparked the most aggressive series of rate hikes in decades. While prices remain high, the rate of those price increases has slowed, and the Federal Reserve may finally be seriously considering a reduction in interest rates.

At First Glance, Another Solid Jobs Report

The U.S. Bureau of Labor Statistics (BLS) reported that nonfarm payrolls rose a solid 206,000 in June, topping the consensus forecast offered by Bloomberg News of 190,000. However, first glances may not always leave the correct impression. Private sector payrolls increased by a more modest 136,000, and nonfarm payrolls were revised downward by 111,000 in April and May.

A Dysfunctional Housing Market

What happens when mortgage rates tumble below 3% and then spike above 7%? Unintended consequences are bound to play out. In hindsight, they aren’t difficult to spot. You’re a winner if you have no intention of moving and were lucky enough to lock in ultra-cheap rates just a few years ago. Those who want to move or renters who want to buy are less fortunate.

Mixed Signals

Much has been made of the remarkable resilience of the American economy. Forecasters who confidently called for a recession in 2023 got it wrong. So far this year, the economy is generating new jobs, and the U.S. economy has yet to falter.