Key Points

  • Job growth remains strong and the unemployment rate ticked up for “good” reasons.

  • Historically, as the (lagging) unemployment rate has declined, so has the pace of returns for the (leading) stock market.

  • The skills gap remains wide; and qualified job switchers’ wage gains are outpacing job stayers’ wage gains.

“Quality is much better than quantity. One home run is much better than two doubles.” Said once by Apple’s Steve Jobs, it’s a quote with relevance to today’s employment market. There’s no question job growth has been on a tear. In fact, at 93 months and counting, this has been the longest stretch in history with consecutive positive monthly payroll growth, as you can see below.

Record-Breaking Run of Payroll Gains

Source: Charles Schwab, Department of Labor, FactSet, as of June 30, 2018.

Courtesy of that exceptional string of job gains, the unemployment rate has plunged to depths rarely seen in history—other than, importantly, just before recessions. Notice the dots I placed on the unemployment rate in the chart below. They serve to illustrate the highly-lagging nature of the unemployment rate. Historically it was at extremely low unemployment rates that recessions began (conversely, extremely high unemployment rates accompanied the end of recessions and beginning of recoveries).

Unemployment Rate: Extremely Low (But Lagging)

Source: Charles Schwab, Department of Labor, FactSet, as of June 30, 2018.