Is the economy slowing enough to cause the Fed to pause in their rather draconian rate hikes that have alarmed the financial markets enough to make them believe a recession is imminent?
Wall Street’s bumpy ride is due to higher interest rates that elevate its borrowing costs, and the Fed hasn’t said when they will stop the rate hikes (five times already this year).
We might have to wait for Friday’s unemployment report to know with more certainty if the job market is cooling, which Fed Chairman Powell and Fed Governors have said is a desired result.
Tuesday’s release of the the total number of hirings and job departures in the September Job Openings and Labor Turnover Survey (JOLTS) report gives us a hint of what’s to come.
The government report released Tuesday found there were more than one million fewer job openings in August than in July -- a 10% drop and the biggest one-month decline since April 2020 gives us a hint of what’s to come—as unemployment claims dipped to a five-month low. Employers have slowed hiring amid rising costs, gas price spikes and Federal Reserve interest rate hikes intended to stifle inflation.
“The number of job openings decreased to 10.1 million on the last business day of August, the U.S. Bureau of Labor Statistics reported today. Hires and total separations were little changed at 6.3 million and 6.0 million, respectively. Within separations, quits (4.2 million) and layoffs and discharges (1.5 million) were little changed.”
It reports that some 300,000 new jobs were created in September—subtract 6.0 million separations from 6.3 million hires in the JOLTS report. This is close to the consensus estimate of 275,000 new hires estimated by economists in the upcoming unemployment report.
The broad decrease in job openings was led by healthcare and social assistance, with a decline of 236,000. There were 183,000 fewer job openings in other services, while vacancies decreased by 143,000 in the retail trade industry. Fewer job openings were also reported in the financial activities, professional as well as leisure and hospitality industries.
And the “little changed” quits and discharges figures tell us that employers are reluctant to let go of employees, and employees are reluctant to leave their current jobs. So the labor market is stabilizing and employers are expecting few surprises during the fall and holiday season.
Employers have slowed hiring this year amid rising costs, gas price spikes and Federal Reserve interest rate hikes intended to stifle inflation. Nonetheless, there were positive employment signs. In August, unemployment claims fell to a five-month low and employers continue to hire at a steady rate, as we said.
Also, the ISM barometer of U.S. business conditions at service-sector companies such as hotels and restaurants dipped to 56.7 percent in September. Yet the survey also showed steady growth and rising employment in a sign the economy is still expanding. Numbers over 55 percent in the survey of Supply Managers is considered exceptional.
Another jobs report said U.S. private sector employers added 208,000 jobs in September, up from a revised 185,000 in the prior month, according to the ADP job report released Wednesday. ADP reported annual pay was up 7.8 percent in September, from a revised 7.7 percent in the prior month, which is just keeping up with current inflation.
We believe the Fed should now pause in further interest rate boosts to give financial markets time to adjust to the rapid series of rate increases that are driving up long-term as well as short-term interest rates that is harming the housing market at a time when there is still a shortage of affordable housing.
And we are spending vast sums supporting the Ukraine that need to be paid for as it fights to repel Putin’s invasion. So do we need higher interest rates at this time?
Harlan Green © 2021
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