The unemployment rate fell slightly to 4.2 percent in August: How will investors respond?

Over the last year, the number of unemployed workers nationally has increased from 6,340,000 to 7,115,000, with the associated rise in the unemployment rate growing from 3.8 to 4.2.

This sudden increase has some economists ringing alarm bells that a recession could be in the US economy’s future. The Salm Rule states that if the three-month average for the national unemployment rate is sitting a half point or more above the lowest recorded rate over the past twelve months, a recession is taking hold in the economy. With these economic conditions reflected in the July Employment Report, some investors on Wall Street were startled. In early August, investors began selling off tech stocks as worries of a recession forced them to see that the AI craze overvalued the prices of these stocks and that they could be very damaging to their portfolios if the economy experienced a slowdown.

How will markets respond?

However, the August report should provide some relief, with unemployment falling slightly and 142,000 jobs being added to the economy. As markets are set to open within the hour, we will see how investors interpret the news. The August Employment report shows that the labor market is still tight, with the number of workers in the labor market increasing by 709,000 over the last year while the number of employed workers has fallen by 66,000. This shrinking in the number of employed workers as more people enter the labormarket shows that labor demand is falling and that workers looking for a job are encountering greater competition.