Initial Numbers: Fed Rate Cut Doesn’t Budge Labor Market

On September 18, the Federal Reserve cut the federal funds rate by 0.5 percent, from a range of 5.25 – 5.5 percent down to 4.75 – 5.0 percent.

That was big news. The rates prior to the cut were at their highest level in 23 years, and the half-percent cut was larger than many pundits had expected. The signal from the Fed was clear: now that inflation is more or less under control, they’re on a mission to stabilize the rest of the economy.

A chief concern for many analysts is the job market and unemployment. After a lackluster jobs report from the BLS in September, some parties speculated that, in an effort to curb inflation, the Fed’s high interest rates were hurting the labor market: when capital is expensive, it’s harder for employers to hire, which means fewer job listings, which can stagnate growth.

So did the rate cut work? Did employers start hiring after the Fed’s announcement? To answer that question, we turned to JobsIndex.

The Data: Job Listings Follow Established Trends

We looked at data for three weeks: the week before the rate cut, the week of the rate cut, and the week after the rate cut.

Here’s what we saw:

Our data shows that the mean weekly change in US vacancies over the past 12 months is -6,361, with a standard deviation of 84,600. The Z-score for the week of the rate cut is 1.17, or within 1.17 standard deviations of the mean.

This means the number is not an outlier (which would require a Z-score of two or three standard deviations of the mean), which signals that employers did not change their hiring plans in a statistically significant way immediately following the Fed’s rate cut announcement.

More Volatility Ahead?

Federal Reserve Chair Jerome Powell has indicated that he expects additional rate cuts before the end of the year and that he expects inflation to continue to slow.

While both are positive signals for the economy, there’s also plenty of uncertainty, including a presidential election in November.

Another factor that might affect the economy and the labor market: Hurricane Helene devastated parts of the Southeastern US in late September, including a small town in North Carolina known as the world’s sole producer of high-purity quartz, one component part of semiconductors (found in the silicon chips that power modern electronics and in solar panels).

As of this writing, it’s unknown whether the mine that houses the high-purity quartz has been damaged or how soon extraction and export could resume. Damage or delays could have big economic impacts.

What’s more, as of this writing, the International Longshoremen’s Association (ILA) is on strike, meaning 14 ports in southern and East Coast states are currently closed. If the work stoppage is prolonged, it could wreak havoc on various sectors of the economy.

In other words, while the Fed’s rate cut is a positive signal for the economy, there is enough uncertainty remaining that business owners are likely proceeding with caution as they consider expanding headcount.

Interested in more insight into how current events shape the labor market (and vice versa)? Stay tuned to this space (and follow us on LinkedIn) for updates.