The labor market has been the stalwart of the US economy this year, supporting momentum that’s set it on a glide path for that Goldilocks scenario known as a soft landing. New data this week showed more people entering the workforce, increased hiring and slowing wage growth—three key ingredients of Fed Chair Jerome Powell’s design for a victorious conclusion to his war on pandemic-era inflation.
More good news for the American economy came in the form of corporate profits, which are on the rise again after a year of declines. Friday’s nonfarm payrolls report showed an uptick in the unemployment rate. This suggests that the highly resilient labor market is finally cracking and that the effects of the Fed’s aggressive tightening campaign is showing up.
Consumer spending continued to be robust – a further sign of US economic strength. Household spending, the primary driver of economic growth, rose in July buoyed by consumer spending and has economists raising projections for third quarter growth.
What can derail the markets?
Future Wealth’s View
Economic data is telling us that the consumer is healthy and a strong labor market will continue to keep the consumer spending which in turn leads to economic growth. The most important piece of economic data this week was the unexpected jump in the unemployment rate to 3.8% from 3.5%. That was spurred by a whopping 736,000 people entering the labor force last month, bringing the participation rate up to 62.8%. The rise in the jobless rate is encouraging for those looking for a more dovish Fed, with 4% seen as a looser labor market that can open the door for easier monetary policy.
If all of these signs are pointing to the much anticipated resumption of a bull market, one would have to proceed with caution given the global uncertainties. But, to quote from Peter Lynch’s book – “One up on Wall Street” – “People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”