The economy returns to overheating
Job postings in top 10 million for first time since January
THE labor market still refuses to cooperate with the narrative that the economy is softening.
After three straight months of declining job vacancies, economists had forecast a fourth month for April. The March preliminary report on the Job Openings and Labor Turnover Survey, or JOLTS, had shown 9.59 million job openings, and economists had expected openings to fall to 9.35 million. Instead, the March report was revised to 9.745 million, and the April figure came in at 10.103 million.
So there was around 750,000 additional job offers at the end of April than economists predicted. Instead of declining from the previous month, employers added 358,000 open positions to listings. The job vacancy rate – the number of openings relative to the number of unemployed – fell from 1.67 to 1.79, a sign that the job market is not just overheating, but still warming more.
Retail still booming, housing recovering
The retail sector added 209,000 vacancies, defying predictions based on declining consumer sentiment that consumers were losing steam. This confirms the consumer resilience we saw earlier in the Personal Consumption Expenditure numbers, where nominal spending rose 0.4% for the month. Transportation, warehousing and utilities added 154,000 openings, likely serving a large portion of this consumer spending.
The recovery of the housing market has also manifested itself. Vacancies in the construction sector increased by 83,000. This is a seasonally adjusted figure, so it cannot be taken to simply reflect warmer weather. Vacancies in the mining sector increased by 31,000 despite the recent sharp drop in the price of oil. The health sector posted help announcements for an additional 185,000 positions, bringing the total number of vacancies in the health sector to 1.9 million.
Openings in catering and hotel fell to its lowest level since April 2021. One has to wonder, though, if exhaustion is playing a role here. With 1.14 million vacancies, openings are still well above the pre-pandemic level of 810,000, and employment remains below the pre-pandemic level. At some point, employers may give up trying to find more workers.
A blow to the soft landing theory
The increase in job openings was strong enough to reverse almost all of the weakness that seemed to seep into the labor market after January. It was the steady decline in vacancies that gave credence to the idea, first voiced by Federal Reserve Chairman Jerome Powell, that the labor market could cool due to a drop in openings without this seriously affecting employment. Perhaps no one would have to lose their job if the rate hikes only tempered openings rather than increased unemployment.
This “soft landing” seems increasingly implausible. If the Fed wants to cool the labor market, it will most likely require an increase in unemployment. The rebalancing will have to be at the expense of the jobs that people actually do rather than a softer elimination of potential jobs.
Even before the JOLTS numbers were released on Wednesday, Cleveland Fed President Loretta Mester say it FinancialTimes that she saw “no compelling reason to pause”.
Of @FTIt is @colbyLsmith Interview with President Loretta Mester of Cleveland #Feed.
The next political meeting promises to be interesting, especially IF the next set of data comes in full force (namely, today’s JOLTS, #jobs report, and next week’s CPI #inflation.)… pic.twitter.com/UqkzWruD4l— Mohamed A. El-Erian (@elerianm) May 31, 2023
After the JOLTS number, it’s probably safe to say that the labor market provides compelling reasons not suspend interest rate hikes.
This is what it looks like when doves are crying
Not everyone at the Fed is yet convinced of a hike for the June meeting. In a speech in Washington, DC, on Wednesday, Fed Governor Philip Jefferson always seemed to be on the “pause” side:
Since late last year, the Federal Open Market Committee has slowed the pace of rate hikes as we approached monetary policy tight enough to bring inflation down to 2% over time. A decision to keep our policy rate constant at a future meeting should not be interpreted as meaning that we have reached the maximum rate for this cycle. Indeed, skipping a rate hike at an upcoming meeting would allow the Committee to see more data before making decisions on the extent of further policy firming.
It should be noted that even the doves warn that this is not the end of the hiking cycle.
Federal Reserve Governor Philip Jefferson delivers a speech May 18, 2023 in Washington, DC. (Drew Angerer/Getty Images)
We have gone from a Fed trying to dissuade the market from the idea of cuts later this year to a The Fed is trying to prepare the market for increases.
And the message gets through.
“The Fed is not over” BlackRock Chief Larry Fink told a financial services conference hosted by Deutsche Bank AG on Wednesday, Bloomberg reported. “Inflation is still too high, too sticky.”
As of Tuesday afternoon, fed funds futures implied a 41% chance of a rise at the June meeting and a 68% chance of a hike by July meeting.
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