2nd largest decrease in US Job Openings this decade “pleases the Fed”

As we discussed yesterday, the historically large reduction in US job openings announced Tuesday night could be the first sign of an overheated labour market finally cooling off, as well as a sign that the Fed’s monetary tightening strategy is clearly effective as it pertains to its goal for employment, at least for now. 

US Job openings dropped by 1.1 million in August, the 2^nd largest decrease this decade. We went from 2.0 job openings per person in July, to 1.7 measured in August.

“The heat of the labor market is slowly coming down to a slow boil as demand for hiring new workers fades,” said Nick Bunker, head of economic research at Indeed hiring Lab. This is still very much a job seekers labor market, just one with fewer advantages for workers than a few months ago.

To break it down further, in the job openings in the healthcare and social assistance industries saw a combined decline of 236,000, followed by 143000 in the retail industry. Declines were also reported in the financial, professional, leisure and hospitality sectors.

The so called ‘quit rate,’ viewed by economists as a measure of market confidence, remained unchanged. Layoffs rose to 1.5 million from 1.4 in July.

Most importantly, the unemployment rate increased from 3.5% to 3.7%.

After the annoucement, focus turned to the Fed, to see how this would impact monetary policy moving forward.

Theoriticaly, the lower the unemployment rate the more room the Fed has to raise interest rates. Hence any increase in unemployment like we saw yesterday could imply that the recent rate rises are working, meaning we might not require a continuation under the frantic pace we have been seeing.

The RBA raising interest rates by only 0.25% this month, which was under the 0.5% market expectation, appears to coincide with this narrative.

Conrad DeQuadros,, senior economic advisor at Brean Capital in New York, implied the Fed would also be pleased with the report’s outcome.

“The Fed will welcome this apparent decline in excess demand for labor in the hope that it eases wage pressures. However, the ratio of job openings to unemployment in August was at about the same level as seen in the fourth quarter of 2021, which at that time was a record high.”

Last night we saw the US ADP job report show a slightly better than expected jump in new jobs in September (208k v 200k) and better wage growth too. This ‘good news’ saw expectations of more Fed hawkishness rise, shares come off into the red, gold and silver retreat slightly and the USD strengthen last night.  Such contradictory data will continue to see turmoil in markets but clearly there is economic weakness and the Fed is tightening right into it.

The all important Non Farm Payrolls data is going to be released this Friday, with the expectation being that the US economy added 250,000 jobs in September – potentially the smallest increase this year. It will be very interesting to see which of the US job opening data or ADP report is already priced into these expectations, and whether the outcome is going to be much worse than originally anticipated.  Either way, expect volatiliy and as we always say… Balance your wealth in an unbalanced world..  

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