Good Jobs Equal Bad Stocks, Alas

The unemployment rate fell to 3.5% in September, matching the historic low that preceded the pandemic. The drop came in part from a decline in the number of people seeking work. But the result is still a labor market that remains tight despite rising interest rates.

The Labor Department reported earlier in the week that job openings declined by 1.1 million in August from July, but the 10 million jobs that remain unfilled are still above the total before the pandemic There were only 5.75 million Americans who were unemployed in September, and that number fell by 261,000 in the month. The worker-jobs mismatch continues.

None of this was encouraging to financial markets, as stocks shed in one day much of what they had gained over the week. The Dow Industrials dropped more than 600 points Friday—a 2.3% decline and a near reversal of its gains since Monday. The Nasdaq fell 3.9% and closed the week with a meager 0.8% gain.

Investors assume the jobs report, the last before the Fed’s next monetary meeting, will cause the central bank to keep raising interest rates at a fast pace. They’re probably right, but the Fed doesn’t need the jobs market as an excuse.

We have never agreed with those who think a strong jobs market is per se inflationary. And 8% inflation is enough of a reason for the Fed to keep going upward. The monthly consumer-price index comes out next week and few are predicting much of an inflation reprieve.

The main benefit of the jobs report for the central bank is that it offers more political running room to tighten money. As long as the jobless rate stays low, the clamor for easing from Congress should stay muted.

President Biden said Friday’s jobs numbers showed the labor market settling into “stable, steady growth,” and if only that were true. Slow growth continues, but the necessary campaign to break inflation makes this a highly uncertain time for the economy and investors.