The arrival of the first Monday in September signifies more than the unofficial end of summer and backyard barbecues. President Grover Cleveland signed legislation that made Labor Day a federal holiday in 1894. Since then, our nation has celebrated Labor Day as a tribute to the American worker while celebrating the many contributions the workforce has made to our modern society.
The actual holiday came about right after the Industrial Revolution when our economy was transitioning from its largely agrarian roots to an industrial force. This shift brought about many changes including urban concentrations of workers, the proliferation of wage labor, and, unfortunately, new avenues for the exploitation of laborers. In the 1880s, labor unions started forming to advocate for better working conditions, pay, and hours. After several strikes and protests culminating with the Pullman Strike of 1894, President Cleveland signed the holiday into law as a conciliatory gesture.
Since its beginning, Labor Day has reflected the evolution of the labor market and the economic impact of those changes. Today’s labor market is still adjusting to a world after the COVID-19 pandemic. The pandemic hit the labor market like a torpedo. Almost 20 million American’s lost their jobs in just four weeks. Others had their work environment disrupted and affected in ways unimaginable before the crisis. “WFH” became more than an acronym for many working in service industries. Countless Americans chased dreams of starting their own business in the aftermath.
In the recovery since the depths of the pandemic, unemployment has made its way back to the historically low levels attained in early 2020 before COVID-19 entered our collective psyche. However, the inflation spike to levels not seen in a generation drowned out the improvement in our labor market. The Federal Reserve and other central banks around the world responded to inflation by tightening monetary policy using the tools at their disposal. Our central bank dropped rates to 0% on the cusp of the pandemic to stimulate economic activity, and then raised rates 525 basis points over 16 months to stave off inflationary pressure by establishing a monetary environment which restricts economic activity.
The Federal Reserve has kept rates at this level for a year now and the labor market is softening on the margin. Federal Reserve Chairman Jerome Powell mentioned that the recent softening has more to do with a slowdown in hiring and an increase in the labor force instead of increased layoffs which would send a more pessimistic signal. The upcoming Fed meeting in two weeks is eagerly anticipated, as it may result in the Federal Reserve lowering rates, thereby alleviating economic conditions with a less restrictive monetary policy.
The decisions made by the Federal Reserve and other policymakers over the coming weeks, months, and years will undoubtedly impact the labor market, the global investment landscape, and the broader global economy. As we celebrate the American worker this weekend with football and grilled treats, Labor Day of 2024 is met with an evolving labor market and recalibration of our government’s response to it, which harkens back to the origin of the holiday itself.
Source: Federal Reserve Economic Data
Originally published August 30, 2024 at Globalt Investments
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