The U.S. unemployment rate is going up, which is good for the economy

Last Friday’s U.S. job report showed a strong market — with 315,000 jobs added in August.

• In August, the unemployment rate rose to 3.7% — up from 3.5% in July.
• But the rise in unemployment wasn’t from layoffs but from more people entering the workforce…

More workers are returning to the workforce, with the labor participation rate (share of people looking for a job) rising in August. Last month, ~786,000 people came off the sidelines — a “huge” number, per the Chief Economist of ZipRecruiter (CNBC).

• Not looking for a job? You aren’t counted as “unemployed.”
• Looking for a job? You’re counted as “unemployed” until you find a job.

An increase in job seekers brought up the unemployment rate in August — a positive sign for employers struggling to find enough workers.

Wages and prices have been driven up by a tight job market — where there are approximately two job openings for every unemployed worker.

Just as intended: Per former Fed Governor Randall Kroszner, “this is really what the Fed is hoping for” — more people returning to the job market (BBG).

• Fed Chair Jerome Powell warned last month that the economy is likely to experience near-term economic pains as it battles inflation.
• This will likely come in the form of negative job growth, a higher unemployment rate and more layoffs — per Sam Ro of TKer.

The unemployment rate has trended down since the start of COVID — but we may start to see the unemployment rate increase. Investors, don’t be alarmed with a rising unemployment number — unless we start seeing job growth slow alongside it.