Will a Cooling Labor Market Translate to Cooling Interest Rates?

September 5, 2023

By Krista Eberly, CFP®, CIMA®
Investment Management Officer

The area of the economy making the Fed’s mission of engineering a ‘soft landing’ difficult is the strong labor market. However, recent data show the labor market may finally be cooling off. This is a welcome sign for the Federal Reserve and the markets. Let’s digest last week’s labor data.

JOLTS

Last Tuesday, the Labor Department released the Job Openings and Labor Turnover Survey (JOLTS) for the month of July. It showed job openings fell to 8.8 million, below the 9.5 million economists’ expected. This is the lowest job openings since March 2021. The underlying trends of the report were encouraging for the Fed as well. The number of unemployed workers to job openings are down to 1.5:1, down from its 2:1 peak last year. In addition, job quits continue their downward trend. Job openings are trending in the direction policymakers desire but still remain well above pre-COVID levels.

Payrolls and Unemployment

Friday was ‘Jobs Day’. This is when payroll data is released on the U.S. economy for the prior month. It is closely monitored by economists, investors, analysts and, most importantly, the Fed. Why? Maximum employment is one of its dual mandates for monetary policy.

The nonfarm payrolls showed 187,000 jobs were added in the month of August. This was above expectations yet the prior month’s reading was revised lower. The unemployment rate unexpectedly rose from 3.5% to 3.8%. This was a result of the labor force participation rate increasing as more workers entered the labor force. This is exactly what the Fed wants to see. More people looking for work not only reduces the numbers of job openings but also helps to alleviate wage pressures. This is essential for the Fed to be able to achieve its 2% inflation target.

Looking Ahead

This is the last of the labor market data before the Federal Reserve’s policy meeting later this month. The expectation for that meeting is no rate increases. The question still on everyone’s mind is if the Fed is done raising rates for this tightening cycle. As part of its upcoming policy meeting, we will receive updated interest rate projections to see if the Fed still sees another 0.25% of tightening between now and the end of the year. Stay tuned!

If you have any questions regarding opportunities in bonds, please reach out to us today. Your success matters to us.

About the Author

Krista Biernbaum, CFP®, CIMA®

Krista Biernbaum is an Investment Management Officer within the Security National Wealth Management division. As an Investment Management Officer, she manages client portfolios, analyzes securities and performs daily trading activities. A Certified Financial Planner (CFP®) and Certified Investment Management Analyst (CIMA®), Krista holds a Bachelor of Science degree in mathematics from Wayne State College.

How to Master the Psychology of Judgement in Investing April 22, 2024

Daniel Kahneman is best known for his work on behavior and the psychology of judgement in decision making. Kahneman and his colleague Amos Tversky’s research laid the foundation of behavioral economics/finance. Their research demonstrated people often make mental errors and have cognitive biases, this was contrary to most classical economic models at the time, which were based on a “rational being” to explain people’s economic decisions. The world of behavior finance continues to expand building on the foundation of Kahneman’s early research.

Spring Cleaning: Time to Cultivate Your Financial Plan April 15, 2024

As the old adage goes, April showers bring May flowers. Depending on where you are from or walk of life, this proverb can take on many meanings. The way I interpret the classic saying is that April represents a time for preparation. A time to do some spring cleaning and tackle projects neglected during the winter months. For farmers, it means a return to long days in the fields. For accountants, it signifies the conclusion of an arduous three months of tax preparations. At Security National Wealth Management we feel now is a great opportunity to assess your financial plan and ensure you are on the right path to achieving retirement goals.

Look What's on the Verge of a Major 40,000 Milestone April 1, 2024

In early December 2020, my colleague, Michael List, published an article marking the Dow Jones Industrial Average hitting the 30,000 milestone. In that article, Michael describes four different methods that each provide us with an educated guess as to when the Dow would cross the 40,000 milestone, with guesses ranging from two to six years. Michael said that the 40,000 milestone probably would be here faster than we expect but that it ultimately would leave us with more questions, e.g., when would the Dow reach 50,000? And now, about 40 months later, or 3.33 years, the Dow is approaching 40,000, causing us to guess when it ‘turns’ 50,000. To continue our analysis, let’s use the same methods utilized by Michael to predict the arrival of the Dow at 50,000.