What This Job Market Really Means
As the Fed repositions itself in the face of a changing labor market, here's where the economy and future of work is headed next.
“Something is rotten in the state of Denmark.” – William Shakespeare, Hamlet
When you think about the most powerful buildings in Washington D.C. area, certain iconic ones come to mind.
The White House, the Pentagon, and the Supreme Court, to name a few.
But the truth is that for Wall Street and the world of finance, one of the most influential is a nondescript building tucked right next to Union Station, where trains routinely deliver tourists and powerful elite in and out of the nation’s capital…
The Bureau of Labor Statistics.
What you should know is that this Friday, when the Bureau of Labor Statistics (BLS) releases its employment figures for the month of August, nearly every desk in the financial community will be tuned in.
That’s because, since January, the U.S. unemployment rate has been ticking up from 3.7% to 4.3% for the month of July. That’s an increase of 16%.
In addition, the latest data from the BLS shows that employers added 818,000 fewer jobs over a 12-month period that ended in 2024 than were originally reported. That means that only 2.1 million jobs were created over the past year, compared to the 2.9 million reported.
To put that into context, that’s the worst revision since 2009.
However, as those figures worsened less than a year ago, Federal Reserve Chairman Jerome Powell suggested that further rate hikes could be on the table – because the labor market was too ‘hot’.
Yet, the trending increase in the U.S. unemployment rate shows that the Fed either “missed” or intentionally ignored a weakening labor market – all in its zeal to substantiate tighter monetary policy to combat inflation that started in March 2022.
The truth behind the job numbers shows that something is rotten – not in Denmark, but on Main Street.
Now, concerns it might have missed the rot are slowly emerging from the Fed.
Fed Governor Bowman admitted last month that consumers are pulling back, and she even underscored the BLS revision mess up, saying the, “report suggests that job gains have been consistently overstated in the establishment survey since March of last year…”
The jobs trend points to a Fed interest rate cut this month, because as Powell noted at Jackson Hole, there are ‘risks’ out there.
Let me explain.
Signs of Overall US Jobs Slowdown
First, let’s recall that when Powell became chairman of the Federal Reserve, the U.S. unemployment rate was 4.1%. It dropped to 3.5% in 2019 without any increase in inflation, and he characterized none of that as ‘hot’ at the time.
The cynic might say he promoted the ‘hot’ labor market narrative, which was mostly due to post-Covid shut-down hiring, as a reason to raise rates in order to fight inflation. The idea was that the Fed could have saved face after it labeled rising inflation as ‘transitory’ in 2021.
That’s aside from the fact that, as we’ve reported, there’s little reason to believe the Fed has had any impact on real asset inflation. Overall, declines in inflation rates have coincided with supply and economic cycles.
The truth is that the Fed can’t truly control the price of oil, gold, food, or rent – just as it can’t stop wars or fix supply chain issues. Monetary policy might be a blunt tool, but even if it is data dependent, the Fed is still coming up short – and late.
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The BLS publishes its monthly projections for the U.S. labor force participation and growth rates over the next decade.
Their recent report, released in August, shows that both population and labor force growth rates are projected to slow down from 2023 to 2033. That’s down even further from the decade before.
Over this time, the BLS expects the U.S. labor force to grow by 0.4% per year, and the population to grow by 0.6% per year.
That means that the population is growing more quickly than the labor force.
The problem is that as the labor force expands more slowly than the population does, the labor force participation rate drops, too. Ultimately, this means fewer people are in the labor force as a portion of the population.
Compounding this forecasted labor slowdown is the U.S. economic slowdown. Economic or GDP growth has been slower over the past two decades compared to the 1980s and 1990s decades. That's one reason for the decline in labor force growth.
According to the BLS, this downward trend will continue, and GDP growth will drop to 1.9% per year over the next decade.
The Growth Areas That Are Hiring
While the U.S. unemployment rate keeps rising overall, certain sectors have been steadily hiring in a manner commensurate with long-term, demand-driven growth.
According to the U.S. Energy and Employment Report released by the U.S. Department of Energy last week, the number of jobs added in the clean energy sector in 2023 grew more than twice as fast as the country's overall job growth.
Those jobs in the clean energy sector included wind, solar, nuclear and battery storage. The sector added 142,000 jobs, expanding the workforce by 4.2% in 2023, faster than the 3.9% increase in 2022.
This flashing trend wasn’t just in clean energy – but in energy as a whole. The total number of energy jobs increased by 250,000 last year, with 56% of those being in clean energy and the rest in other traditional energy fields, including infrastructure and construction jobs.
Those construction jobs in clean energy have gained traction on the back of policy initiatives and private-sector investments.
Growth in those jobs "is expected to continue for decades to build out the clean energy infrastructure that we need," Betony Jones, Department of Energy’s head of energy jobs, told reporters last week.
As we’ve reported, the need for upgraded and modernized technologically that is energy efficient is critical for the U.S.
The investments are already creating jobs, but they are also building the economic and national security foundations – both elements that are relatively resilient to interest rate and inflation variables.
To tap into this energy transition, consider an allocation in the Vanguard Utilities – VPU ETF (VPU). The VPU ETF consists primarily of the utility companies involved in the transforming elements of the energy sector as a whole.
That's apropos, given the magnitude of recent revisions.
I think the BLS should be renamed as the Bureau of Lying Statisticians.