Sep 5, 2023

Job Gains, Rising Unemployment Rate

Weekly Market Commentary

It sounds like a contradiction. Jobs increased last month, but the unemployment rate also rose. What happened?

Nonfarm payrolls rose by 187,000 in August, according to the U.S. Bureau of Labor Statistics (BLS), while the unemployment rate rose to a still-low 3.8% in August from 3.5% in July.

A quick review of the graphic below reveals that job growth continues to cool in the face of higher interest rates.

But why did the jobless rate increase last month? The unemployment rate is measured by the Household survey, which gathers data from families and households. Nonfarm payrolls, on the other hand, are measured by the Establishment survey, which collects data from businesses.

In the Household survey, the employment component rose by 222,000, and the labor force (those working AND not working but actively searching for work) jumped by 736,000.

Subtract 222,000 from 736,000, and we get a net increase of 514,000 in unemployment, which accounts for the uptick in the jobless rate.

In other words, the jobless rate didn’t rise because fewer people were working. Instead, the economy could not absorb the large number of new entrants into the labor force in August.

In some respects, this could be viewed as healthy for the economy, as businesses in some industries still don’t have the workers they need.

Bottom line

The Federal Reserve has warned that below-average economic growth is needed to correct the imbalance between supply and demand, with the ultimate goal of achieving price stability.

For workers, the slowdown in job growth could be viewed as an unwelcome development. We’re not seeing a decline in employment, but greater competition in some sectors for work increases the difficulty in landing a job or changing jobs.

For investors, the slowdown is welcome as it takes some pressure off the Federal Reserve to raise interest rates. The moderation gives the Fed room to pause on rates in September while keeping its options open later in the year.

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

Then and Now

Overbuilding, speculation, and easy access to credit encouraged a housing boom and a bust in the 2000s. Sales cratered later in the decade, and along with it, prices tumbled. Today, housing sales have plummeted once again.

Powell’s Victory Lap (Sort Of)

Fed Chief Powell’s much-anticipated speech against the picturesque backdrop of the Grand Tetons in Jackson Hole, WY, virtually assures that the Fed will reduce interest rates next month. In a short 16-minute speech, Powell said the magic words. “The time has come for policy to adjust.

Economic Anxieties Subside

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.

A Rollercoaster and the Carry Trade

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.

A September Rate Cut is on the Table, Softer Economic Data Raises Worries

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.