Over the past few weeks, the jobs market has taken quite the hit. On August 2nd, the Bureau of Labor Statistics released the Employment Situation Summary, which stated that unemployment rate rose to 4.3% in July. While this was not good news regarding the labor market, it wasn’t absolutely terrible news. More bad news came about a week ago, when there was a correction to the data for the last year. This correction was for April 2023-March 2024, stating that the U.S. economy added 818,000 fewer jobs than orginally reported. The labor market is weaker than expected, and the Sahm Rule is in effect. (The Sahm Rule states that when the three-month average unemployment rises by 0.50% or more from its 12-month, a recession is hitting the U.S.).
Many would try to gaslight us into thinking we are in a strong job market, but the numbers tell a different story. Today, we struggle to know what know what the economy is going to look like in the near future, let alone the labor market. Today, we had more bad news in the labor market, as unemployment rates increased in 350/389 metropolitan areas.
The Labor Market Impact
The Labor Market has an impact on the economy in many ways. The most important, and obvious, impact is the impact on the labor force. Many who are laid off struggle to find a job. Those who had to leave their job for personal/family reasons are struggling to find their way back into the workforce. Many who were forced out have had to settle for a lower-paying job below their skill levels to find pay.
While inflation has up and down lately, the extra pressure on the work force has put strains on the economy. Many looking for better deals may be stuck with options that are less-than-optimal. Recently, the Federal Reserve indicated that due to the poor news in the jobs market we may be getting a interest rate cut next month. Interest rate cuts provide relief for those looking to take out loans for a new home, but they also come with other consequences. Lower interest rates provide more purchasing power for consumers. More purchasing power for consumers brings more spending. More spending brings higher demand. And higher demand brings an increase in prices.
Higher prices may mean an increase in stocks and the stock market. If this were to happen, we would see strong performance in our retirement portfolios, which is a good thing.
What Happens Next
Where the economy goes from here is unknown. Many look to the upcoming U.S. elections as an answer to the issues in the labor market, but it’s up to individuals to make strong economic decisions. One of three things will happen in the next few months: An economic recession. The poor labor market, along with stagnant inflation, potentially points to this future. The second option is an economic recovery, one in which the labor market heats up, prices stay strong in the market, and interest rates fall. The last option is we are stagnant, prices stay the same and the unemployment rate stays the same.
Regardless of what happens, we know as individuals we have a few choices. Right now is a great time to start building a retirement portfolio and start investing. Year-over-year the market goes up, even if there is an economic downturn, it will eventually move upwards. It’s also a great time to start living economically free, freeing yourself of debt while building wealth. We have many resources on financial literacy here at Freedom Finances. While we wait for outcomes of the economy, don’t wait to make the right changes in your life!
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