When the employment sector is running hot and wage growth is putting more money in the employee’s pockets, it’s fueling inflation. This is primarily because more hands chase existing goods and services as the US economy is still battling with supply issues. And, this is perhaps what the central bankers do not want – a rising employment sector.
Liz Ann Sonders and Kevin Gordon at Charles Schwab are of the view that from the perspective of policymakers, weaker labor data (bad news for workers) is a welcome development, as that would theoretically produce some slack, lead to less-hot wage growth, and ultimately help bring demand back into balance with supply. As such, persistently strong labor data (be it faster wage growth and/or stronger demand for labor, both of which are good for workers) is seen as bad news in the eyes of investors, as that would all but guarantee the Fed must keep pressing harder on the brakes.
On the surface, it appeared that the jump in the unemployment rate from 3.5% to 3.7% was bad news. But it was for a “good” reason in that the labor force participation rate increased by 786k, including an important surge in prime-age participation, which is just shy of its pre-pandemic peak.
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The Federal Reserve has been quite vocal about its intention to loosen the labor market in order to bring inflation down. Economists were collectively looking for a continued deceleration in (job) open positions, which would confirm that the Fed’s tighter policies were working in bringing companies’ demand for labor down.
Confirming the move lower in job openings has been an increase in job cut announcements over the past few months.
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The Fed’s hope is that the trends in job openings and layoff announcements don’t translate into material weakness in payrolls or unemployment.
In other words, the goal is to crush job openings without sparking a sustainable move higher in the unemployment rate. In an environment of higher inflation, fading profit margins, and rising interest rates, the margin for success continues to fade.
