Cracks may be showing. The most anticipated recession has been absent, so far. There have been many typical recessionary signals flashing, however the labor market has remained strong. Logic would dictate more workers would translate to higher spending. This seems to have held true for 2023.
Job data released in the final days of August may have put a dent in that trend. At a high level, the data was mixed. However, available jobs (employers with open positions) had a poor showing1 and the Unemployment Rate exhibited a decidedly unappetizing increase1. Labor markets are generally a lagging indicator. In other words, labor markets offer confirmation of where we have been. Mixed jobs data with the existing backdrop suggests a possible economic inflection point.
With that said, the Unemployment Rate is still near all-time lows, close to full employment. The term “full employment” can be a little confusing. “Full” implies everyone is employed, hence an Unemployment Rate of 0%. Yet, peoples’ employment status changes all the time. People, quit, are laid off, are fired, or leave/enter the workforce. There is a natural turnover and accepted level of unemployment. “Full employment” is an attempt to recognize this reality. Full employment can be thought of as the highest number of workers that can be employed at any given time. “Full Employment” tends to equate to sub-5% Unemployment Rates.
When asked for a target Unemployment Rate floor, economists do what they do best: they waffle. Their response is, “it depends.” In other words, “full employment” is a construct dependent on circumstances. I know, not very helpful. Suffice it to say, the lowest Unemployment Rate was 3.4%, achieved in 1969 and a single month of April 20232. (3.5% was achieved for a few months prior to the sudden COVID shut down recession2.) Since April 2023, the Unemployment rate has been oscillating upwards with a jump in August1.
The data has not yet confirmed a breaking point, but a cooling jobs market clearly seems afoot. No worries as Fed Chairman Jerome Powell’s objective is to tame inflation via economic deceleration, which includes cooling the jobs market. Prior recessions have come with sustained periods of significant job losses which does not seem to be in the cards just yet.
It’s a natural tendency to tie economic performance with stock performance. Though they influence each other, stock results have many other considerations than the economic phase. It’s important to keep in mind that investing (specifically stocks) and the economy are separate endeavors. As a reminder, investors are best served to maintain a well-diversified portfolio focused on their objectives.
1Bureau of Labor Statistics, bls.gov
2St. Louis Federal Reserve FRED database