Suddenly, the data is playing along.
US job openings notched one of their largest monthly declines on record in August, hotly anticipated figures out Tuesday showed.
It’s difficult to overstate the significance. The large decline was a boon for the burgeoning “policy pivot” trade, and a veritable Lazarus moment for the left-for-dead “soft landing” narrative.
Openings were 10.053 million on the last business day of August, the lowest since June of 2021, the BLS said. That was more than 1 million below consensus. Hires ticked up, closing the gap dramatically (figure above).
The openings rate was the lowest since May of 2021. “Firms are starting to pull vacancies as a deteriorating global growth outlook prompts caution in corporate boardrooms,” ING’s James Knightley remarked. The government data, he said, “echoes the headlines from this morning’s KPMG CEO survey, wherein 39% of top CEOs have reportedly instigated hiring freezes.”
Outside of the pandemic months, the 1.1 million decline was the largest MoM drop in the history of the series, which dates to 2000 (figure below).
Openings fell in manufacturing and retail trade, and continued to recede in leisure and hospitality, where vacancies are now at a 15-month low, albeit still very elevated versus history.
This is progress. I’ll recycle some language from this week’s data preview. Jerome Powell is still clinging to some version of the narrative that says Fed tightening can render millions of job openings superfluous, thereby reducing labor market friction, cooling wage gains and short circuiting the wage-price spiral, all without too many people losing a job they currently hold. The likes of Larry Summers and Olivier Blanchard think that’s exceedingly unlikely.
Powell habitually refers to the ratio of job openings to those counted as unemployed, which sat near two for most of this year — that is, (nearly) two jobs for every would-be worker who doesn’t have one.
Extrapolating using Tuesday’s JOLTS data, the ratio is now below 1.7, the lowest since November (figure above).
Part of the problem is matching efficiency, and the Fed can’t address that. Also, history isn’t on Powell’s side. “Some observers seem to be hoping for an immaculate conception,” Blanchard said, in a recent interview with Goldman. “The historical relationship between job openings, or vacancies, and unemployment is crystal clear: The job vacancy rate has never substantially declined without a significant increase in unemployment.”
Blanchard is probably right. But Tuesday was a round for Powell, although I’d note that the quit rate held at 2.7, and the number of quits actually rose, although not by much. Both remain close to, but below, record highs.
I’d say it’s a mistake to read too much into the headline JOLTS print, but I don’t think that’s quite accurate here. We’ve probably seen the peak. This is very much what the Fed is hoping to see, and while it won’t be a smooth ride to “normal,” it seems highly unlikely that we’ll revisit the highs in job openings, especially given incessant reports of corporate hiring freezes aimed at cutting costs and streamlining operations ahead of what many analysts now believe is an “inevitable” recession.
“The jobs market is still incredibly tight, but the Fed will take some satisfaction in today’s direction of travel,” Knightley went on to write. “While business caution is likely to spread, firings are still a way off,” even as a sub-50 ISM employment index and softer vacancy data suggest “the momentum will weaken further in coming months,” he added.
A few more months of big declines in job openings set against solid payrolls (where that really just means positive payrolls) would suggest Summers and Blanchard may be wrong — that this time might, in fact, be different.