US labor market not backing down

Climbing the wall of worry has become the markets’ mantra over the last few months. Expectations of economic slowdown and stubborn inflation have so far not materialized and seem to keep being pushed further out. 

There is still consumer uncertainty, but those surveys have rebounded off their weakest levels of the year. Surveys of manufacturing activity show that companies are finding ways to react to policy uncertainty, though their prices paid and employment levels continue to show signs of strain.

While behaved, inflation remains frustratingly above the Federal Reserve 2% target. The labor market continues to plod along: weekly jobless claims are trending slowly higher, averaging 227,500 year-to-date, still historically low, while monthly employment gains have averaged 130,000, strong enough to keep the unemployment rate oscillating between 4.0% and 4.2% this year. June’s report showed 147,000 jobs added, above expectations, and the unemployment rate eased from 4.2% to 4.1.

Markets and the US economy have been remarkably resilient throughout this period of uncertainty. With a solid labor market and still-sticky inflation, the Fed can still wait for more clues as to what to do next.