Wednesday, May 1, 2024

New data should JOLT us and the Fed away from inflation fear

And even Fed Chair Jerome Powell pointed to this and the reduction in openings when he gave his press conference I looked into the JOLTS report, and saw that March’s drop in job openings was almost entirely due to 2 sectors – construction, and finance/insurance.

Change in job openings, March 2024
Total, US -325,000
Construction -182,000
Finance/insurance -158,000

Those other job sectors accounted for more than 7.85 million or the 8.49 million job openings in March. That number is slightly below where it was at the end of 2023, with declines in January and February, and eking out that slight gain of 15,000 in March. Interestingly, comparison finance/insurance has bounced up and come back over the same time period, while openings in construction were steady until its large decline hit last month.

This would indicate that the job market is still growing, but with less urgency to hire. That would be consistent with a “soft landing” and should moderate wage pressures – which the Federal Reserve allegedly wants to see before they cut interest rates. In fact, Fed Chair Jerome Powell pointed to the reduction in openings in JOLTS when he gave his press conference after the Fed meeting let out this afternoon as a sign that rates didn’t need to go higher at this time.

So how did construction still add 39,000 jobs in March, continuing its impressive string of gains over the last 2 years? Because the amount of layoffs and discharges in construction dropped by 63,000 in March, and stood at just over half the level it was at in March 2023.

Likewise, there was an overall decline in layoffs and discharges in America in March. That decline more than offset a drop in hiring over the first three months of 2024, and total separations (mostly quits and layoffs) have declined almost as much as hiring has.

This helps to explain how job growth increased in Q1 while fewer hires were happening.

So what I’m seeing out of this JOLTS report is a still-strong jobs market, but one that isn’t overheating, and with labor demand slowly softening. This JOLTS report seems comforting if you fear inflation, as the underlying figures indicate that the demand for labor isn’t as strong and immediate as it was this time last year – we just haven’t had a need for as many layoffs and fewer workers are quitting. This also indicates to me that Tuesday’s freak-out on Wall Street over the 1.1% increase in employment labor costs for Q1 wasn’t warranted, and we aren’t heading back to the inflation levels we saw in 2021 and the first half of 2022.

Let’s see if the lower openings in March translate into softer job numbers for April when the monthly numbers come out on Friday, and if so, let’s see if that moderates wage growth as well. Although I’d argue that even if we were stuck at 4.5% wage increases and 3.5% inflation, that’s still a pretty good situation in the Real World....if that kind of thing matters.

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