US Labor Market Stays Strong, Stocks Rebound as Investors Weigh Data

The June jobs report was more encouraging than consensus economists expected. Stocks are rising on the news, but some fundamental issues still linger in the US economy.

The Department of Labor released the June jobs report on Friday, giving investors a clearer picture of the US economy. Non-farm payrolls added 372,000 jobs against the 268,000 expected by consensus economists. That’s a huge uptick in new payrolls, and many investors are taking it as a sign that the US economy is more resilient than previously thought. 

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“The strong 372,000 gain in non-farm payrolls in June appears to make a mockery of claims the economy is heading into, let alone already in, a recession,” writes Andrew Hunter, a senior economist at Capital Economics. “The June gain leaves the three-month average increase at a rock-solid 375,000, well above the outright stagnation typically seen in the run-up to economic downturns.”

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The tight labor market has been a talking point among economists and Federal Reserve officials since the end of 2020. Many workers who left their jobs in March 2020 never got back to work, creating a vacuum in some sectors of the economy. This has spilled over into companies offering their workers better salaries and benefits in a bid to keep them on staff. 

Tight Labor Market

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Economists are scratching their heads about the tight labor market, seeking to get to the bottom of the sudden downturn in the number of workers applying for jobs. Some have suggested that many retail and food service workers are simply fed up with their working conditions and refuse to return to those sectors, and instead are looking for corporate jobs–or other, less official, means for generating income.

“The high number of people not returning to the workforce is one of the nagging problems with the labor market right now,” says Jeffrey Roach, chief economist for LPL Financial. “Relative to pre-pandemic levels, the economy has 4.8 million more people out of the labor force. Some likely took early retirements but that does not explain the rest of the story.”

This imbalance between job openings and the number of people willing to fill them has created a great environment for some workers. Those seeking jobs in competitive fields can leverage their position to get higher salaries and better benefits before coming to work. While this is great for workers, it is also causing further inflationary pressures on the economy, as companies hike their prices to make up for the difference in their soaring labor costs. 

Stocks Rise on Job Report

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The encouraging jobs report has investors feeling optimistic Friday morning. Stock futures are rising as analysts weigh the news in relation to previous claims that a recession was “all but inevitable”. Both the S&P 500 and Nasdaq ticked up around 0.2%, while the Dow Jones jumped 0.3% on the news. This is encouraging for investors after the past several months have been marked by extremely choppy stock prices and frustrating trading patterns.

In other stock news, GameStop shares surprisingly rose Friday morning on the news that the company is terminating its CFO Michael Recupero and will be cutting back on its workforce. Meanwhile, shares of social media platform Twitter are down 4% this morning on the news that Tesla CEO Elon Musk might not be able to follow through with his proposed $44 billion plan to buy the company. 

“The June employment report reassuringly showed that despite increasing recession concerns, the labor market remains strong,” says Kathy Bostjancic, chief US economist at Oxford Economics. Now, investors are hoping that this strong labor market will lead to better economic performance in the second half of 2022. However, inflation and soaring shipping costs remain a concern for the wider economy. Until these issues are sorted out, the economy will remain in a state of flux.

Railroad Bottleneck Underscores Economic Issues

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A massive bottleneck in the BNSF and Union Pacific railways along the West Coast is causing issues in the US. This shipping crisis is a microcosm of the issues plaguing the industry globally. “60% of our long dwelling containers are scheduled to go on the rail,” explains the Port of Los Angeles’ executive director, Gene Seroka. “Our land capacity is at 90% .” This is a massive slowdown for the rail industry, and it represents a fundamental issue in the US economy.

Rail containers at Los Angeles and Long Beach are spending an average of 7.5 days waiting to board a train. This is an issue primarily for the Pacific Northwest, as the region relies heavily on rail to provide its logistics and shipping. The long wait times at major US ports are a driving factor behind inflation, as long wait times increase shipping costs. 

“We are at a point of inflection as to the rail bottlenecks, including the lack of rail cars at the nation’s largest and most significant container gateway,” explains Mario Cordero, the executive director for the Port of Long Beach. As long as these issues persist, the US will have to face uncertainty regarding the economy.

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