A great time for job seekers, less so for home goods

By Joe Higgins, Quest 4 Quality

  • The economy added 272,000 jobs in May, far exceeding even the most generous predictions of growth
  • The unemployment rate ticked up to 4% in May, from 3.9% in April
  • The job numbers make it unlikely that the Fed will cut interest rates next quarter

Last week’s May jobs report was good news for workers and bad news for investors.

To paraphrase Michael Corleone, just when you think you have a handle on where the economy is headed, you get pulled in another direction.

Hiring in May was extremely active, as the U.S. economy added 272,00 jobs against expectations of 185,000. The downside is that the unemployment rate bumped up slightly, from 3.9% to 4%.

It is clear that after two years of rising interest rates and falling consumer spending, employers are hanging on to existing staff after facing severe shortages in the early part of the pandemic. Based on some of the most recent reporting, it appeared that we were trending toward a slowdown. But these numbers seemingly say, “Hold on, we are not in trouble yet.”

Help Wanted

The most significant impact came from services — health care and education took the number one spot with 68,000 new jobs created, while leisure and hospitality gained 42,000 spots. In our neck of the woods, retail added 18,000 staffers following a particularly good April, when stores made 21,000 new hires.

This was taken as unwelcome news for investors as added employment means the Fed could further delay interest rate cuts, putting a drag on the stock market. But it was great news workers, as there were still more than 8 million job openings, or approximately 1.2 jobs for every job seeker.

Meanwhile, the jobless claims report came in at a comfortable 229,000 for the week ended June 1. It was an increase of 8,000 unemployed over the prior week. Jobless claims at this level indicate employers are not laying off workers at a high enough rate to cause concern.

No Rate Cut for You

But Fed Chair Jerome Powell and his team are not happy about this degree of job growth. They need higher unemployment and slowing job creation and wage growth to reduce inflation effectively. There is an intense desire by the Federal Reserve to cut interest rates, as maintaining high rates could push us into recession. Economists do not believe Powell will announce a decrease in the rate at this week’s Federal Open Market Committee meeting (FOMC).

Economists rounded up May’s unemployment rate to 4%, but the precise figure was 3.96%. In the past 74 years, the unemployment rate has only been below 4% four times. It happened once in the late 1950s, once at the end of the ’60s, during the dot-com era of the ’90s and today. Labor has overperformed, as unemployment has remained below 4% for the past 26 months — again, at one of the lowest rates in U.S. history.

So, how did the markets perform with all this good news about job creation? The Dow and S&P 500 were basically flat when the numbers were released last Friday. Investors were anticipating slower growth that would allow the Fed to drop rates. But don’t worry; all the indices over the past 12 months have turned in numbers that have exceeded expectations, with the S&P 500 up over 20%.

Bottom Line

The star of the show in our economy has been labor. We have not seen normal employment numbers since the recession in 2020. I believe that the market is still very healthy, but I do think that a normalization of the labor market is now underway. With jobless claims rising and job openings in decline this past month, it is just a matter of time before the economy begins its inevitable slowdown.

America is not headed toward a recession; it is rolling out more like a soft landing. I know the pundits are claiming we are about to run over the cliff, but the Fed still can cut rates in the event of a slowdown. A rate cut that lowers the 30-year mortgage below 6% could set off a frenzy of home sales and drive your furniture and appliance businesses to new heights.

Joe Higgins is a 44-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at Q4QwithJoe.com.

Upcoming Events