August 8, 2022

Market Update

The Jobs Report

The employment report was shockingly strong. The economy added 528K jobs, and economists expected 258K. Leisure and hospitality, professional and business services, and health care saw the greatest job gains. Employment levels are back to Feb. 2020 levels, and we’ve recovered 22MM jobs in 2.5 years. Private sector employment is now 629K above the pre-pandemic level and government employment is 597K below.


  • The unemployment rate dropped to 3.5% -- matching its Feb. 2020 low.
  • Covid is still impacting the labor market. The employment report showed that there were 656K more people out sick than in July 2019.

The Big Debate

The post-Covid economy may be less efficient at matching job seekers to job openings. This could mean higher unemployment for a given level of vacancies to stabilize wages and prices (the natural rate of unemployment). Jobs shifted location and certain skills became more in demand. The Fed can’t fix these mismatches.

To get inflation to 2%, the Fed will need to cool the labor market and wage growth (currently running 5% to 7%). The effort starts by reducing the number of job vacancies. As this declines, unemployment tends to rise (the Beveridge curve).

Fed Gov. Chris Waller just put out a paper arguing that unemployment only has to rise 1%. Vacancies are currently so high relative to available workers that new job openings generate fewer and fewer hires. This means a given decline in vacancies will have a smaller effect on unemployment than in a normal labor market. But this would violate what has always happened in the past.


  • Some economists think that the sacrifice ratio (how much unemployment has to increase to drop inflation 1%) is close to 2.
  • Despite slowing consumer demand, the supply of workers to make goods and provide services has been considerably below companies’ needs.
  • The median increase in unemployment during post-WW II recessions is 3.5%.


Robinhood is laying off 23% of its full-time staff. In April, they reduced their staff by 9%. Robinhood stated that they had overstaffed under the assumption that the heightened retail engagement from the Covid era would persist.


  • Robinhood’s number of active users is down 34% YoY.


Consumers are facing higher prices, the return of commuting costs, a need for new work clothes and steeper child-care expenses. This is going to cause struggles. A survey by ZipRecruiter showed that 21.5% of current job seekers say they were previously retired at some point and 35.8% of them ranked inflation as the top reason they have returned to the job market. Another 26.2% said that they’re returning because they are running out of retirement savings.


  • A recent survey found that 41% of respondents who considered but didn’t purchase a healthcare service over the prior month cited cost as the reason.
  • Medical care services inflation rose just 4.8% YoY in June.
  • Between 2001 and 2019, rents rose 16% while renter incomes rose only 5% (in real terms).
  • The share of American renters who pay 30% or more of their income on rent rose 2.6%. Nearly half of renters now fall into that category.