Employment Numbers:  A Case of Good News/ Bad News

October 10, 2022

This year’s economic data has given investors plenty to analyze and certainly created market volatility. Each week investors and economists have new data readings to gauge the health of the U.S. economy. This past week, September’s employment data was front and center.

For many investors looking to analyze September’s release and form an outlook moving forward, good news became bad news. While that may seem odd, allow me to explain.

Lower Unemployment = Incentive to Raise Rates

In September, the unemployment rate fell two points to 3.5%, matching the half-century low last seen in July. While job growth has slowed in recent months, it remains strong, with 263,000 jobs added in September. Together, this points to an economy with persistently strong employment, often a good sign.

However, many investors are concerned that strength in employment will provide the Federal Reserve incentive to continue to raise short-term interest rates aggressively, effectively slowing the economy further. Furthermore, the labor-force participation rate — the share of adults with or currently seeking a job  — continues to be stubbornly low at 62.3%. A low participation rate results in upward pressure on wages and inflation as employers continue to compete for workers to fill job openings.

Market Volatility Likely to Continue

With the results of last week’s employment data, the Federal Reserve is likely to continue raising short-term interest rates at a historic pace through the remainder of the year. Fed members have openly communicated their intentions to continue hiking until they see significant progress toward their goal of 2% inflation. Volatility in the markets will continue and the likelihood of a recession has increased as the fight against inflation continues.

How are we positioned? 

Going forward, accounts under our charge will remain fully invested throughout a market cycle. Future long-term market expectations have increased as starting valuations fall to more attractive levels. Diversification, along with valuations and a focus on high quality investments, will remain vital as we navigate upcoming market headwinds.

We will continue to work with you on reaching your future goals. Please reach out to your advisor today if you’d like to discuss your accounts and expectations going forward.