WEEKLY MARKET UPDATE

“Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth

as well as some softening in labor market conditions.”  

~ Federal Reserve Chairman Jerome Powell during Friday August 25th Jackson Hole speech ~

It was a busy week for economic data, but the labor market took center stage as investors cheered a series of reports that indicated the softening of the US labor market.  For example, Tuesday’s job openings and labor turnover survey (JOLTS) registered the lowest number of US job openings in nearly two and half years while the number of people quitting their jobs, viewed as a gauge of worker confidence in getting a new job, dropped to levels not seen since 2021.  Friday’s jobs report for August beat expectations (187K nonfarm payrolls vs. 170K consensus), but the unemployment rate rose from 3.5% to 3.8% as more workers entered the labor market.  In addition, prior reports for June and July were revised lower, particularly June, which initially came in at 209K payrolls and is now half that, at 105K.  This continues a growing trend of the Bureau of Labor Statistics downwardly revising previous jobs numbers and every month in 2023 has been revised lower.

However, this jobs data was viewed as goldilocks (not too hot, not too cold) by markets and the S&P 500 rebounded over 2% on the week as expectations for future rate hikes from the Federal Reserve meaningfully declined.  Ultimately, the recent trajectory of the labor market lends itself to both bears (pessimists) and bulls (optimists).  Bears would posit that this slowing of the labor market is consistent with an economy heading towards recession.  Bulls on the other hand, believe these jobs reports are consistent with a “soft landing” and are signs of a tight labor market becoming more balanced, thereby reducing inflation pressures.  In the short-term we expect jobs data that comes in below expectations to continue to be cheered by markets, but it will very interesting to see if/when investors begin to view bad labor market data less favorably.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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