JP Morgan, one of the Portfolio Strategists we utilize for client accounts, analyzed the September Employment Report in their Weekly Market Recap this week …
Within the broader labor market mosaic, investors have found themselves paying particular attention to one measure: the unemployment rate. While the unemployment rate ticked lower to 4.1% in September, it remains well above its cycle low of 3.4% set in April 2023.
The gradual trend higher in unemployment has sparked concerns the labor market could be cooling too quickly. However, looking under the hood, things are not as alarming as headlines might suggest. Unemployment can rise for two reasons: fewer people working or more people entering the labor force to look for a job. The recent increase in unemployment has been driven not by a decline in employment but rather by a growing labor supply. Initial jobless claims and reported layoffs remain historically low, indicating that the labor market is still relatively stable.
In fact, payroll data shows that the U.S. economy created 254K new jobs in September. However, job growth hasn’t kept pace with labor supply growth over the last year. A post pandemic immigration surge and labor force participation rising to levels last seen in 2008 have left some new entrants into the workforce without a job.
Despite a higher unemployment rate than a year ago, wage growth in September remained elevated at 4.0% over the last 12 months, marking the 17th consecutive month in which wage growth has outpaced inflation. This, coupled with a high number of job openings —approximately 8 million, suggests sustained demand for labor. Given this backdrop, investors should remain cautious but not overly pessimistic. As long as layoffs remain low and wage growth continues to outpace inflation, the U.S. economy is likely to remain resilient. Moving forward, even if employment conditions weaken further, real wage gains should continue to support consumer spending, allowing the U.S. economy to maintain a trend-like pace into 2025.
