The Fed will have to harden its stance to break the labor market. But at what cost for investors?
The Bureau of Labor Statistics released the latest jobs report on Tuesday. Since inflation became a hot topic post-lockdown, Fed Chair Jerome Powell has repeatedly called for loosening the labor market. After all, having a steady income spurs excess demand, which prolongs inflation.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,”
Jerome Powell, Federal Reserve Chair at Jackson Hole conference
Although the Fed’s official dual mandate is to keep unemployment low and prices stable, the latter takes priority. In this monetary regime, a resilient labor market is not a sign of a strong economy but a problem to be tackled.
With that in mind, the job report for August does not look suitable for the Fed’s goal to make labor market conditions softer.
Labor Market Hardens
For August, the Job Openings and Labor Turnover Survey (JOLTS) revealed 9.6 million job openings. As 690,000 new jobs were added, this translates to a 5.8% job openings increase rate, beating the 8.8 million estimate significantly.
The bulk of new openings came from professional and business services, at +509,000, followed by jobs in finance and insurance at +96,000. Both the quit rate and hires rate remain unchanged, at 2.3% and 3.7% respectively.
The accommodation and food services sector had the most quits, at 88,000, followed by finance and insurance at 28,000. Interestingly, the number of layoffs, holding the rate at 1.1%, increased in state and local government education (+27,000) but decreased in state and local government (-39,000).
The latest JOLTS data marks the largest job openings increase since July 2021. The fresh labor market spike appears to be moving away from recession if compared to the Great Recession of 2007 – 2009 and the brief technical recession in March 2020.