‘Soft Landing’ Narrative Gets Its Lazarus Moment

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.


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14 thoughts on “‘Soft Landing’ Narrative Gets Its Lazarus Moment

  1. Powell said over and over that they won’t ease until inflation is down to the 2% target. This is his chance to be an inflation fighting hero like Volker. He can’t blink at the first slight softening in the data.

    1. That is not what Powell has said. The line is far more ambiguous. The Fed will “keep at it” until the “job is done,” where that means tighter policy until inflation is judged to be on a “sustainable path” lower towards target. That leaves wide latitude for interpretation. It could mean a pause with 4-handle inflation, for example. If inflation is 4% and the policy rate is 4%, that’s not a terrible place to be. I should emphasize that there’s virtually no chance of the Fed holding terminal until inflation is literally at target. That isn’t going to happen. They need to slow the pace now. Runs on UK pension funds, mass destruction across G10 FX stoking pass-through inflation and trade shocks for other developed economies, speculation about SIFI failures.. I mean, you can’t have that. You just can’t. And they won’t. I promise you they won’t.

      1. Systemic financial stability will always trump any other monetary policy objective. We saw that with the bank of England recently. Your comment is spot on

        1. Being lender of last resort was the original reason for the creation of central banks and is their “1st law of robotics”….(asimov)

  2. Nouriel Roubini this morning published his perspective about the economy here: https://www.msn.com/en-us/money/markets/stock-markets-will-drop-another-40-as-a-severe-stagflationary-debt-crisis-hits-an-overleveraged-global-economy/ar-AA12yyge?ocid=winp1taskbar&cvid=b3ad82faed9a4322d15c2e6a9a39fdb2&rc=1

    It’s also here for subscribers: https://www.project-syndicate.org/

    He aligns with the view of a hard landing in the US by year end, which impacts the broader world and contributes to a state of world stagflation. Not great news, but he’s a knowledgeable voice, so I thought it should be shared.

  3. Retirees and retail investors while stocks go up will more than likely not trickle down up spending. Maybe elsewhere than dollar store, I doubt it’s party on.
    FED may have breathing room as you suggested this morning.

  4. We could conceivably get a soft landing
    But we are at an inflection point. I would suggest that the fomc and investors start foaming their respective runways.

  5. I look at the market and just shake my head. All it seems to take is a rumor, some positive numbers, and a hope and a prayer.
    Least we forget, there’s a powerful delusional man, with no checks and balances, strumming his fingers on a table that contains numerous red buttons.
    Until he takes that long ferry ride down the river Styx, I’ll follow Ray Dalio’s (and your’s, I believe) philosophy, that “cash is no longer trash”.

  6. The odds for a further case of market “whiplash” are increasing. I have transitioned from not being able to sleep through the night when volatility is moving in the opposite direction of my portfolio- to being (almost) desensitized to volatility. Quite frankly, I no longer believe in the valuations posted for my account “highs” or my account “lows”.

    1. Emptynester – you are not alone in getting to the “I give up phase”. It’s good that you are not unduly stressed. That indicates to me that your asset allocation is not skewed (crazy) enough to keep you up at night. I’ve never gotten the impression that you were borrowing to buy stocks or cryptos which sure makes it easier to ride out these storms, eh?

      1. I have not owed money for anything to anyone in over 20 years.
        Currently, my riskiest investment (of all types) is nvda and the allocation, although with hindsight is larger than I wish it were, is relatively small.
        I was very lucky because there were three different times in the last 20 years when I put 100% of my savings into a single stock (eg. Aapl) and doubled, or more, in a relatively short amount of time.
        It was not done in spite of the advice of others because I never asked anyone else if I should consider doing that. FWIW, I would never ever do that again, however, I was always prepared to suffer the consequences, however painful.

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