Investors and traders have another chance this week to analyze the U.S. Labor market.

The September nonfarm job report will be published by the U.S. Bureau of Labor Statistics on Friday. That’s the findings of a monthly survey of the jobs created by the nation’s business establishments. BLS will also release the unemployment rate. That’s the findings of a monthly survey that measures the number of unemployed people as a percentage of the labor force.

These reports provide important indicators about the economy’s state. It is a sign of what kind of cycle is the economy in. In virtuous cycle terms, rising job creation means more money and growth. More spending fuels new jobs, creating more jobs, more income and so forth. A decline in job creation can be associated with declining incomes and spending which will reduce future growth and job creation.

The unemployment rate is a measure of how efficiently an economy uses its resources, and how close it gets to its maximum production potential and employment. A lower unemployment rate indicates how efficiently an economy utilizes its resources. It also shows its ability to grow closer towards its maximum employment potential and production potential. It becomes more difficult for companies to find employees and they will have to pay higher wages. However, the lower the unemployment rate is, the more the economy will be unable to produce maximum employment and maximize its potential. That’s when it’s easy for businesses to find workers.

What’s the situation right now? What is America’s production potential and how far away are they from it?

Two answers are available to this question. One answer comes from the Federal Reserve, which thinks that the U.S. labor market has plenty of “slack,” meaning there aren’t enough jobs to allow the economy to reach its production potential and maximum employment. In August 2021, for example, 235,000 American jobs were added. That’s a drop of nearly seven months. It was also well below market expectations of 750,000. Despite this, the Federal Reserve still considers unemployment to be too high at a rate of 5 percent. That’s why it hesitates to change its accommodative policies.

Then there’s another answer coming from the nation’s businesses, which think that the labor market slack is a myth, as they have a hard time finding workers. FedEx (NYSE) recently stated that labor shortages had adversely affected its financial results, along with those of home builders and retailers.

This puzzle could be explained by what? There are generous government benefits available that allow people to choose to remain at home over going back to work. These benefits ended in September and should return to normal soon. The pace of job creation will increase, eliminating the stagnation in the labor market and solving the mystery of two labor markets.

This will hopefully be confirmed in the September jobs data. Hopefully, the report will provide some clarity about the Fed’s next move as well.

Disclaimer: This article is solely the author’s opinion and does not reflect the opinions of TipRanks and its affiliates. It should only be used for informational purposes. TipRanks does not warrant the accuracy, reliability or completeness of this information. This article is not intended to be interpreted as an offer or recommendation for the purchase or sale of securities. This article is not intended to provide advice on legal, professional investment or financial matters. TipRanks or its affiliates are not responsible for the contents of this article. Any action you take based on the information is your responsibility. TipRanks’ or any affiliates does not endorse this article or make it a recommendation. The past performance of TipRanks or its affiliates is not an indication of future prices, results, or performances.