The Week in Review: September 5, 2023
Job Gains, Rising Unemployment Rate
It sounds like a contradiction. Jobs increased last month, but the unemployment rate also rose. What happened?
Nonfarm payrolls rose by 187,000 in August, according to the U.S. Bureau of Labor Statistics (BLS), while the unemployment rate rose to a still-low 3.8% in August from 3.5% in July.
A quick review of the graphic below reveals that job growth continues to cool in the face of higher interest rates.
But why did the jobless rate increase last month? The unemployment rate is measured by the Household survey, which gathers data from families and households. Nonfarm payrolls, on the other hand, are measured by the Establishment survey, which collects data from businesses.
In the Household survey, the employment component rose by 222,000, and the labor force (those working AND not working but actively searching for work) jumped by 736,000.
Subtract 222,000 from 736,000, and we get a net increase of 514,000 in unemployment, which accounts for the uptick in the jobless rate.
In other words, the jobless rate didn’t rise because fewer people were working. Instead, the economy could not absorb the large number of new entrants into the labor force in August.
This could be viewed as healthy for the economy, as businesses in some industries still don’t have the workers they need.
Bottom line
The slowdown in job growth could be viewed as an unwelcome development for workers. We’re not seeing a decline in employment, but greater competition in some sectors for work increases the difficulty in landing a job or changing jobs.
The slowdown is welcome for investors as it takes some pressure off the Federal Reserve to raise interest rates. The moderation gives the Fed room to pause on rates in September while keeping its options open later in the year.
Market Summary
TWO FOR THE ROAD
Although it is more expensive for consumers to borrow money now, they also have more options to put their cash to work. American households are earning an extra $121 billion annually from income on investments versus a year ago. - The Wall Street Journal, July 30, 2023
In June, the median price of an existing home increased to $410k, close to an all-time high. For context, a buyer making a 20% down payment on the median-priced house would pay $465k in interest over the life of a 30-year fixed-rate mortgage- more than the cost of the house itself. -1440, August 18, 2023
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