The labor force participation rate, which had been slowly recovering, slipped back from 62.4% to 62.3%. Wage growth on a y/y basis fell from 5.2% to 5.0%, which of course put wage earners even further behind at -3.3% y/y.
Unfortunately, we are in a regime of “good news is bad news.” It’s not that uncommon. The September employment report was good, which means the Fed is going to keep raising rates, and that’s bad. When the stock market digested the report, particularly the drop in the unemployment rate to the 50-year low of 3.5% the Dow crashed over 600 points or 2.1%. The S&P 500 got hit worse, losing 2.8%, but the NASDAQ shattered, losing 3.8%. The Fed time and again has cited the flawed and misleading unemployment rate as one of their favored metrics, and this report clearly gives the Fed the green light to raise another unflinching and determined 75bps at the next meeting in November.
I’m being asked how we can keep creating jobs if we are going into a recession. My answer is “because that’s how it works.” Let’s look back in history. In the chart below, each line shows the number of jobs gained or lost in different recessions. Each line is a different recession. Each line starts 12 months before the recession. You don’t need to figure out all the lines. Just look in the red box – it clearly shows that right up until the recession starts, jobs are still being created. You get the job losses as the recession starts. (And the unemployment rate, as a lagging indicator, again tells you nothing since it only signals recession after it has started).