Notes on Recent Economic Developments
Unemployment levels dip to historic low
With retiring baby boomers leaving fewer people to work, unemployment levels in September hit the lowest levels since the Vietnam War, The Wall Street Journal reported in its Oct. 6-7 weekend edition.
At 3.7 percent, joblessness in September was at the lowest levels since December 1969, the Labor Department said on Oct. 5. In a record 96th consecutive month of gains, employers added 134,000 jobs. Jobs gains in July and August pushed the average number of workers added to payrolls each month this year to 211,000 — outstripping average monthly growth of 182,000 in 2017. Wages rose 2.8 percent.
According to the WSJ report, unemployment rates less than 4 percent are uncommon in modern times, with the Korean and Vietnam Wars being the two lengthiest time frames of such low levels. When the Korean War ended in 1953, joblessness was as low as 2.5 percent. During the 1960s, levels stayed below 4 percent for nearly four years. In more recent times, levels dipped below 4 percent in 2000, but just for a few months.
“This is the best job market in a generation or more,” Andrew Chamberlain, chief economist at recruiting site Glassdoor, told the WSJ.
Mr. Chamberlain expressed skepticism that such low unemployment levels can be sustained, citing tax cuts and defense spending as fading influencers. Meanwhile, many businesses struggle to find workers, the article said.
Banks could face downside of higher interest rates
The higher interest rates buttressing banks’ lending sides over the last couple of years may turn into a double-edged sword for the financial institutions, curtailing business on their mortgage side and in other key areas, The Wall Street Journal reported in its Oct. 6-7 weekend edition.
“The benefits of rising rates will probably run their course later this year into next year,” Gerard Cassidy, an analyst at RBC Capital Markets, told the WSJ. “Over time, rising rates will work against the banks.”
In early stages of Federal Reserve rate-increase cycles, banks can benefit when they increase the rates they charge their customers on loans, even before having to raise rates they pay customers on bank deposits. But analysts and investors are keeping an eye on bank profit margins as the central bank’s cycle of rate increases moves to later stages. That's when banks, for one, may start to see mortgage consumers think twice about home buying or mortgage refinancing.
The maturing cycle of rising interest rates also means that banks may need to start paying more on savings account deposits and more when they tap the capital markets for borrowing themselves. As well, smaller banks and online-only institutions have been raising rates competitively, potentially putting more pressure on larger banks to pay depositors more.
— Compiled by Jean Williams