Housing Shakes Off Pandemic’s Drag but Employment Report Sends Warning Signals

If home sales alone were an indicator of economic health, you might conclude that the economy has rebounded smartly from the pandemic-induced recession and is on a path for steady growth.

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The recession concerns that have been humming quietly in the background grew louder this month as the hiring pace slowed and some key economic indicators slid.  Employers added 136,000 jobs in September and the unemployment rate (3.5 percent) hit a 50-year low.

The Federal Reserve’s decision to cut rates by a quarter-of-a-point this month didn’t surprise anyone – but it also did little to satisfy either critics (including two Fed dissenters) who thought the reduction  was unnecessary (and possibly harmful) or President Trump, who has been demanding larger cuts to boost economic growth.

“Disappointing.”  That’s a description that hasn’t applied to the U.S. employment growth in a long time.  But the Department of Labor’s August employment report fell well short of predictions, adding to concerns that the economy may be slowing and firming expectations that the Federal Reserve (Fed) will continue slashing rates in order to forestall what some see as a growing risk of recession. 

Will they, or won’t they?  The ‘they’ is the Federal Reserve and the question is whether the policy-setting Federal Open Market Committee (FOMC)  will lower interest rates when it meets next in late July.  The committee voted 9-1 in June  to leave rates unchanged, but a post-meeting statement, eliminating previous references to “patience,” signaled a willingness to consider a rate cut, though probably not before next year. The statement also downgraded the committee’s assessment of economic strength from “solid” to “moderate.”