After September U.S. Jobs Data, Fed Tightening Remains on Track | Lord Abbett
Image alt tag

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Economic Insights

 

Continuing inflation risk likely will prompt the U.S. Federal Reserve to back away from its current levels of policy accommodation.

 

Read time: 2 minutes

A report released by the U.S. Bureau of Labor Statistics on October 8 showed that payroll employment gains in the United States for September fell way short of expectations for a second consecutive month. Payroll employment rose by 194,000 in September versus an expected increase of 500,000.

The unemployment rate dropped to 4.76% in September from 5.19% in August and has decreased by over 1% since June. The broader U-6 unemployment rate1 is 1.3% lower over the same period. That represents a very rapid tightening of the labor market. Household employment growth—a series that carries lesser importance because it is extremely volatile from month to month—increased by 526,000 in September. The employment-to-population ratio rose to 58.7%, just slightly below the previous cycle average of 59.3%. The previous peak of 61.1% will be difficult to match due to an aging labor force.

Meanwhile, the September data also showed that pay increases are accelerating, a signal that progress is being made towards maximum employment. The acceleration in wage inflation in 2021 stands in sharp contrast to the deceleration after the global financial crisis of 2008–09, which followed the usual dynamic from prior recessions.

Fed Policy Implications

The slowdown in the U.S. employment recovery—it would take another eighteen months to recover all the jobs lost during the downturn if employment growth averages 300,000 per month and three to four years to catch up to the pre-pandemic trend level of employment—implies that reopening the economy after COVID will not be smooth. Instead reopening is full of frictions that are leading to inflationary pressure on prices and wages across a broad swath of the economy.

This creates a conundrum for the U.S. Federal Reserve (Fed) since inflation is emerging from a constellation of excess demand in some sectors and insufficient demand in others. The risk is that as demand recovers more broadly, inflation picks up in sectors where it hasn’t accelerated much yet, like health care services, even as it remains higher in sectors where it has picked up already, such as food away from home.

As both inflation and inflation risk have increased, it behooves the Fed to back away from providing maximum accommodation and build in some optionality for future policy adjustments. Job growth, while still robust, is slowing and pay increases are accelerating, increasing the difficulty for the Fed to meet its objective of minimizing the shortfall from maximum employment. The problem is that labor supply appears to be increasing only gradually even as jobs remain 5 million below the pre-pandemic peak and 7-8 million below trend.

Since maximum employment may have declined and increasing wage pressure is a signal that inflation may not be transitory, we think the Fed is likely to stay on course to announce its tapering schedule at its November policy meeting and begin removing accommodation in December even if it would have preferred more robust results on the employment front.

1The U-6 unemployment rate represents all unemployed, marginally attached and part-time for economic reasons individuals as a percent of the civillian labor force plus all marginally attached workers.

Unless otherwise noted, all discussions are based on U.S. markets and U.S. monetary and fiscal policies.

Asset allocation or diversification does not guarantee a profit or protect against loss in declining markets.

No investing strategy can overcome all market volatility or guarantee future results.

The value of investments and any income from them is not guaranteed and may fall as well as rise, and an investor may not get back the amount originally invested. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance.

Market forecasts and projections are based on current market conditions and are subject to change without notice.

Projections should not be considered a guarantee.

 

Equity Investing Risks

The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. While growth stocks are subject to the daily ups and downs of the stock market, their long-term potential as well as their volatility can be substantial. Value investing involves the risk that the market may not recognize that securities are undervalued, and they may not appreciate as anticipated. Smaller companies tend to be more volatile and less liquid than larger companies. Small cap companies may also have more limited product lines, markets, or financial resources and typically experience a higher risk of failure than large cap companies.

 

Fixed Income Investing Risks

The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Bonds may also be subject to other types of risk, such as call, credit, liquidity, and general market risks. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. 

 

The credit quality of fixed income securities in a portfolio are assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor’s, Moody’s, or Fitch, as an indication of an  issuer’s creditworthiness.  Ratings range  from ‘AAA’ (highest) to ‘D’ (lowest).  Bonds rated ‘BBB’ or above are considered investment grade. Credit ratings ‘BB’ and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.

This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The views and opinions expressed are as of the date of publication, and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions and Lord Abbett disclaims any responsibility to update such views. Lord Abbett cannot be responsible for any direct or incidental loss incurred by applying any of the information offered.

This material is provided for general and educational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Lord Abbett product or strategy. References to specific asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice.

Please consult your investment professional for additional information concerning your specific situation.

This material is the copyright © 2021 of Lord, Abbett & Co. LLC. All Rights Reserved.  

Important Information for U.S. Investors

 

Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.

FOR MORE INFORMATION ON ANY LORD ABBETT FUNDS, CONTACT YOUR INVESTMENT PROFESSIONAL OR LORD ABBETT DISTRIBUTOR LLC AT 888-522-2388, OR VISIT US  AT LORDABBETT.COM FOR A PROSPECTUS  WHICH CONTAINS IMPORTANT INFORMATION ABOUT A FUND'S INVESTMENT GOALS, SALES CHARGES, EXPENSES AND RISKS THAT AN INVESTOR SHOULD CONSIDER AND READ CAREFULLY BEFORE INVESTING.

The municipal bond market may be impacted by unfavorable legislative or political developments and adverse changes in the financial conditions of state and municipal issuers or the federal government in case it provides financial support to the municipality. Income from the municipal bonds held could be declared taxable because of changes in tax laws. Certain sectors of the municipal bond market have special risks that can affect them more significantly than the market as a whole. Because many municipal instruments are issued to finance similar projects, conditions in these industries can significantly affect an investment. Income from municipal bonds may be subject to the alternative minimum tax. Federal, state and local taxes may apply. Investments in Puerto Rico and other U.S. territories, commonwealths, and possessions may be affected by local, state, and regional factors. These may include, for example, economic or political developments, erosion of the tax base, and the possibility of credit problems.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

Important Information for non-U.S. Investors

 

Note to Switzerland Investors: This is an advertising document.

Note to European Investors: This communication is issued in the United Kingdom and distributed throughout Europe by Lord Abbett UK Ltd., a Private Limited Company registered in England and Wales under company number 10804287 with its registered office at Tallis House, 2 Tallis Street, Temple, London, United Kingdom, EC4Y 0AB. Lord Abbett UK Ltd (FRN 783356) is an Appointed Representative of Duff & Phelps Securities Ltd. (FRN 466588) which is authorised and regulated by the Financial Conduct Authority.

RELATED TOPICS

ABOUT THE AUTHOR

image

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field