After months of job growth and tight labor conditions, the latest employment data suggests the U.S. economy may finally be slowing down.
The economy added just 236,000 new nonfarm payroll jobs in March, which is down from the previous six-month average of 334,000, according to the Bureau of Labor Statistics (BLS). Unemployment, however, ticked down from 3.6% in February to 3.5% in March and remains near historic lows.
While many believe a recession is imminent, a loosening labor market could lead the Federal Reserve to hit the brakes on the rate hikes designed to tame inflation. That could have various effects on your financial plans, especially if you’re retired.
A financial advisor can help you respond to economic turbulence. Find a fiduciary advisor today.
What the Jobs Report Tells Us
Each month, the Department of Labor’s BLS publishes key employment data that offers the public a window into the state of the American economy. The report, which is published on the first Friday of each month, highlights the unemployment rate, how many jobs the economy added and other important metrics from the previous month.
The report’s data comes from a pair of surveys conducted by the BLS: one of businesses and another of households. Not only does the monthly report provide a look at the nation’s employment situation, it can also have significant implications on Wall Street. The Federal Reserve also keeps a close eye on the labor market and may move interest rates in response to job trends and unemployment.
The March jobs report shows a labor market that is potentially cooling off, as the economy added the fewest number of jobs since December 2020. The BLS also revised its January and February employment totals to reflect weaker job gains than previously thought.
Labor Market and Inflation
Low unemployment and tight labor conditions often cause employers to raise wages in an attempt to attract workers. But to offset these elevated labor costs, businesses tend to raise the price of the goods and services they provide, which can increase inflation throughout the economy.
Inflation was 6% in February, meaning the price of goods and services in the economy was 6% higher in February than it was 12 months earlier. With inflation running well above the Fed’s 2% target, the central bank has raised rates nine times since March 17, 2022. Those rate hikes brought the federal funds target rate from 0%-0.25% to its current range of 4.75%-5%.
Bryan Kuderna, a certified financial planner (CFP) and author of “What Should I Do with My Money,” says the recent stretch of low unemployment has allowed the Fed to be aggressive with its rate hikes.
“If unemployment begins to creep up, the Fed may exercise caution, ease the fight against inflation, and forgo further rate hikes for the time being,” said Kuderna, founder of the Kuderna Financial Team in New Jersey.
While job growth slowed in March, unemployment remained low, hovering just above its 54-year low of 3.4%. The Federal Reserve’s Federal Open Market Committee will meet in early May and decide whether to adjust interest rates further.
How the Jobs Report Affects Retirees
Again, the jobs report provides a look at the state of the American labor market. If the job market remains tight, inflation is likely to persist, potentially leading to more rate hikes. “Rising interest rates suck liquidity out of the economy and make costs of borrowing more expensive,” Kuderna says. “This can have an immediate negative impact on the stock market, as we all saw in 2022.”
But if the labor market truly is loosening up, that could be a bit of good and bad news for retirees. On one hand, it could lead to lower inflation and falling interest rates. Retirees are among the most vulnerable to high inflation since they don’t benefit from rising wages.
However, interest rates do come down, and retirees may need to reassess their financial plans. Fewer jobs in the economy could also negatively impact retirees who rely on part-time work to supplement their retirement income. A hot labor market has meant lots of opportunities for retirees to earn extra income if they need it.
“Not only can retirees looking to stay busy find ample work, but they can find more competitive wages than they were used to when they originally retired and likely with flexibility like working remotely or on a schedule that fits them,” Kuderna said.
In fact, he says former employers have “begged” some of his retired clients to come back to work as consultants, letting them do so on their own terms. That may mean forgoing the daily or weekly commute and working remotely from home.
“The majority of my clients that have gone back to work have done so not for financial reasons, but because they understand the importance of staying active and productive on their long-term health,” he added.
The most recent employment data shows the economy added fewer jobs in March than it had in previous months. This may indicate the economy is slowing down and the red-hot jobs market cooling off. While this could mean that a recession is on the way, as many have predicted, it’s the result of aggressive interest rate hikes designed to curb rampant inflation. The Fed is scheduled to meet in early May to decide whether to increase rates, leave them untouched or begin dropping rates.
Tips for Navigating Recessions
- A financial advisor can help you prepare and respond to changing economic conditions. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Some assets perform better than others during economic slowdowns. Sectors like consumer staples, healthcare and utilities are often more “recession-proof” because demand for them typically remains stable throughout different business cycles. Keep in mind that cyclical sectors, like travel and construction, tend to ebb and flow with the economic cycles and perform worse during downturns.
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