Growing Pressures in the Labor Market
Consumer spending accounts for nearly 70% of economic activity in the U.S., as measured by gross domestic product (GDP). This means that the health and strength of the economy is heavily dependent on personal finances and individuals’ ability to purchase goods and services.
For most people, this ability depends on what they earn in salary and other compensation in return for working at a job. It makes sense, then, for investors to closely watch the labor market when deciding how to best position their portfolios by allocating money across equity and debt assets.
As the Federal Reserve moves to combat high inflation by raising interest rates to cool down the economy, several companies are making the decision to curb costs and mitigate lower profit margins by announcing layoffs. This trend is particularly noticeable in the tech and finance sectors.
Unemployment rates remain low for now and wage growth is still relatively strong. However, signs of a weakening labor market are worth assessing as the future impact on the economy could be meaningful.
