That was the gist of the latest report from the Labor Department. US Employers have withdrawn 1.1 million help wanted signs; instead of offering new jobs, Employers will do without new workers.
What’s so ironic about this current turn of events is that those traders over on Wall Street cheered, greeting this as the best of all possible news.
So, how did we get into this bizarre situation?
Like most things in our economy, this began with the Covid-19 Lockdown of 2020. The Lockdown caused as many as 20 million Americans to lose their job. Then, as the economy started recovering, small businesses and large corporations began to advertise for those old workers to come back and for new workers to join them.
The Department of Labor tracks these unfilled positions in a monthly report called the Job Openings and Labor Turnover Survey or JOLTS. And the JOLTS reports have been one of the principal ways that Analysts use to gauge the recovery. As job openings increased, it was a clear sign that business was improving. The more job openings, the better, went this reasoning.
Finally, in October 2021, there were 11 million Job Openings, and we’ve held there for a year. As we’ve noted, employers suddenly removed 1.1 million job openings last month. Last year this would have been considered terrible news, indeed. It would suggest that employers are getting nervous and feel the economy is slowing. So, they don’t want to hire someone today and risk having to lay them off in short order.
Why are things different now?
Why does Wall Street greet the news of fewer Job Openings with the rally in stocks you saw yesterday?
Increasingly Wall Street finds that it must position its investments in alignment with the current Federal Reserve Interest Rate Policy. The old saw about not “fighting the Fed” was never more true than it is right now.
The Street hopes that by showing that the economy is slowing and there are fewer job openings, the Fed will take its foot off the monetary brakes. In other words, the Fed will slow its pace in raising interest rates.
As the Fed has increased rates, the markets have swooned, with the Dow Jones Industrial Average down nearly 20% on the year. In 2022, the mantra: “Don’t Fight the Fed” must be carved in every trader’s desk.
But as seasoned Fed observers will tell you, understanding Fed policy is no easy matter. When the Fed moves from restrictive to supportive policy can be extremely difficult to ferret. But with this particular group of Fed members, I think we can gain some real insight into what motivates them.
First, let’s observe what the Fed has ignored in implementing higher interest rates. They looked right past the two consecutive quarters of negative GDP Growth, a typical sign of recession. They paid no attention to the decline in new home sales or the tepid retail sales numbers and pretended that the recent all-time low in Consumer Sentiment didn’t exist.
No, the Fed has focused on just one thing: the labor market. I think the Street has understood this, and that’s why yesterday’s Job Openings were so important.
For those interested in trivia, you may know that today’s Treasury Secretary, and the former Chair of the Federal Reserve, Janet Yellen, is by education, a Labor Economist. Someone whose academic training centered around the Labor Market and its influence on the economy.
And in each of his recent addresses, current Fed Chairman Jerome Powell has also focused on Labor. Just a week ago, Powell said:
“Job openings could come down significantly — and they need to — without as much of an increase in unemployment as in earlier historical episodes.”
As we saw, the current Chair was looking for just this kind of job opening report.
So, can we see lower interest rates ahead?
I’m not so sure. But we’re likely to see a pause at the next meeting of the Fed in November. And a break is so much better than the 75 basis point increase the Street was anticipating.
A cooling labor market may show the Fed that these restrictive interest rate moves are already having an effect.
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