Labor market data coming into 2023 was some of the strongest ever, unfortunately, the last few months have not been kind to the labor market. The labor market has been hit so hard that the Fed has cut rates in large part to stop any further weakening in the labor market. Many Americans are saying that this is the hardest environment to find a job in since 2020. This may be a main reason why consumer confidence indicators have been rather pessimistic recently. In his recent article, Jeffry Bartash of MarketWatch writes out a few negative indicators that are currently present in the labor market.
● The unemployment rate has risen to 4.2% from a cycle low of 3.4% just a year and a half ago.
● Job creation each month has fallen to the lowest level since 2019 if the pandemic years are excluded.
● Job openings have tumbled by 37% since early 2022 and returned close to pre-pandemic levels.
● The number of people collecting unemployment benefits has risen steadily from a 42-year low in 2022 and is now above 2019 levels.
Bartash quotes a Bank of America economist who said that jobless claims are the “key indicator to watch” for how the broader economy is doing. Initial jobless claims for the past week were just reported and they came in at a four month low. They decreased by 4000 over the past seven days and came in 5000 under analyst expectations. Claims dropped in over half of the states in the U.S. and in those where it didn’t it didn’t increase very much.
This is good news as it indicates that the economy is expanding, but it's important to look closer at why jobless claims are decreasing. The decrease in jobless claims seems to be occurring not because more people are getting hired, but because layoffs are decreasing. It seems that companies are doing less of both hiring and firing across the board. This sort of situation tends to create a rather stagnant jobs market, which isn’t good for those looking for jobs. Bartash writes, “The number of people already collecting unemployment benefits in the U.S., meanwhile, rose by 13,000 to 1.83 million, the government said.These so-called continuing claims have increased gradually in the past year because it’s taking longer for people who lose a job to find another one.” So, new jobless claims are decreasing, but the number of people receiving benefits is increasing.
The Fed cutting rates should breathe some health back into the jobs market, but it generally takes several months for the effects of a rate cut to permeate throughout the economy. Hopefully we see changes in the next few months that will change the environment to one of hiring and job creation.
Durable Goods Economic Indicator
Durable goods orders data indicated no change in the month of August, order volume remained flat on the month. This is a strong report seeing as economists and analysts were expecting a -2.6% drop in durable goods orders for the month. The big surprise was that transportation orders, specifically aircraft orders, did not decrease anywhere near as much as expectations were indicating. Analysts were forecasting a 20%-30% drop in aircraft sales, in reality they only dropped about 7.5%.
Most analysts are still anticipating a slower durable goods market for the next while. Sam bullard, an economist at Wells Fargo said, “Although a strong start to the Fed’s easing cycle is welcome news for manufacturers, it will likely take some time for lower interest rates to filter through the real economy and revitalize business demand for durable goods,”
For the majority of economic data, the story going forward is going to be the Fed’s new easing cycle. It will take several months for the full effects of the rate cutting campaign to be seen, most economists are looking for early next year to really see how the various markets and economy as a whole will react to it.
GDP Revision Comes in Strong
The government announced that gross domestic product remained practically unchanged in the second quarter of the fiscal year. The previous estimate was 3.0% growth and that was what the Fed said it is staying at. The economy is also looking to have strong growth in the third quarter of this year, estimated to have a growth rate at or slightly under 3%. Consumer spending was down 0.01% to a rate of 2.8% but government spending picked up to a rate of 3.1% which made up the difference. These were really the only updated figures in the government’s report.
Jeffry Bartash of MarketWatch gave the following analysis of these numbers and his outlook on the path forward for GDP, “GDP looks rock solid, but the economy is not as strong as it seems. Hiring has tailed off and unemployment has risen steadily in the past year. The industrial side of the economy remains mired in a slump. And the housing and auto sectors have been held in check by high interest rates. The Federal Reserve is now cutting interest rates, however, and that should eventually help reignite growth throughout the whole economy.”
Personal Income and Personal Spending
Both personal income and personal spending increased in the month of August, spending rose 0.2% (the smallest increase in the past seven months). Consumer spending accounts for about 70% of the flow of the economy, increases in spending and income are good signs for the health of the consumer.
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