The first Labor Day was celebrated in New York City to honor the contributions of laborers across the five boroughs. It was a day to reflect and honor the men and women who contributed to the well-being and productivity of the city and its economy.
All these years later, labor, and more specifically the state of the labor market, remains a focal point for not only the U.S. economy but all capital markets.
As the possibility of rate cuts in September becomes a probability (and perhaps a certainty) following Jerome Powell’s Jackson Hole speech, attention has shifted towards the state of economic growth in the United States. Specifically, how well labor markets are holding up given the pivotal role they play not only when it comes to consumer confidence but also in consumers’ ability to spend.
The positive revision seen this week in both second-quarter GDP and personal consumption indicates continued strength in both growth and consumption, at least through the end of June. As post-pandemic excess savings are depleted, wages will be the key driver of consumption going forward.
This week brings the next all-important check-up on the state and health of the labor market. While job creation and labor demand have been much of the focus in the post-pandemic recovery, attention going forward will likely be the mirror image in relation to the demand for labor: away from jobs created and the number of job openings, and towards demand “destruction” through initial jobless claims and layoffs as a way to monitor increases in unemployment.
The good news? While job creation may be moderating, so far there seems to be little in the way of demand destruction, with layoff announcements near decade lows and the percentage of U.S. companies talking about layoffs on a clear downward trend (see chart of the week below).
As inflation concerns move toward the back of investors’ minds, the health of the labor market as a lynchpin to continued economic growth (along with earnings growth) will be what gives investors pause and focus.
