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US labor market remains strong. Could high inflation, rising interest rates change that?

The labor market should remain fairly strong through 2022, but high inflation and rising interest rates could act as a weight on the U.S. economy in 2023.

MOLINE, Ill. — Renewed concerns about the future outlook for the U.S. economy sent stock market prices falling last week. The S&P 500 fell 1.2% while both the Nasdaq and Dow Jones Industrial Average each declined by 1%. The Dow has now declined in nine of the last 10 weeks.

On Friday, June 3, the U.S. Department of Labor released its latest monthly employment report, which serves as the main indicator of the health of the US labor market. Financial Advisor Mark Grywacheski of the Quad Cities Investment Group joined News 8's David Bohlman on Monday, June 6 to discuss the report.

Find the conversation below.

Bohlman: What are your overall thoughts on Friday’s employment report?

Grywacheski: The labor market is far from perfect, but it is one of those components within the economy that has remained “relatively” strong. In May, 390,000 new jobs were added, above Wall Street’s forecast of a 325,000 job gain. 

For the third month in a row, the national unemployment rate held firm at 3.6%, but with inflation at a 40-year high and interest rates rising, many companies are starting to raise alarm bells over higher costs: labor, operating, manufacturing and transportation.

The concern is that these companies will start cutting back on their labor force to help get these high costs under control.

Credit: WQAD
U.S. labor market challenges

Given the importance of the labor market to the overall economy, what are some of the biggest challenges the labor market is facing?

One of the biggest challenges has been getting people to return to work from the pandemic. Back in March and April 2020, the labor market lost 22 million jobs as entire sections of the U.S. economy were shut down. Here we are over two years later, and we’ve yet to recapture 822,000 of those lost jobs.

There are currently a near-record 11.4 million unfilled job openings across the nation. This is 60% higher than before the pandemic.

Then look at the labor participation rate, which reports the percentage of Americans that are either working or actively looking for work. The LPR is still at a 45-year low. This means that millions of Americans that were once working are no longer working and, more importantly, are not even looking for work.

What’s your outlook on the labor market for the rest of the year?

The labor market should remain fairly strong the rest of the year, but I think the main concern is once we get into 2023. This potent combination of high inflation/rising interest rates will start to weigh on the economy. The big concern is to what extent that weight gets transferred onto the labor market. That’s something that Wall Street will be keeping a close eye on.

Watch "Your Money with Mark" segments Mondays during the 5 a.m. hour of Good Morning Quad Cities.

Quad Cities Investment Group is a Registered Investment Adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.

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