‘Soft Landing’ Hopes Electrocuted By Million-Volt JOLTS Beat

Crucial labor market data released a day ahead of the Fed’s November policy meeting suggested no additional progress on the road to resolving a record mismatch between worker demand and supply.

Job openings rose 437,000 to 10.717 million on the last business day of September (figure below), the BLS said Tuesday. Economists expected a decline.

Between the upside surprise and expectations for another monthly drop, the headline JOLTS print was almost one million more than consensus. It was a million-volt JOLT, and came as a bitter disappointment for policymakers and market participants.

The “soft landing” narrative still relies heavily on the idea that as the Fed raises rates and the economy slows, employers will dial back hiring plans, resulting in fewer job openings and a less acute mismatch between open positions and constrained labor supply. That thesis wasn’t borne out by Tuesday’s data.

August’s near record decline in openings was revised to show a much smaller (albeit still large in absolute terms) drop. Hires fell in September to the lowest since February of 2021. The gap moved wider.

Those hoping for a more dovish Fed are very keen to see more declines in job openings, and commentary from management during Q3 reporting season almost uniformly suggested companies continue to exercise caution on hiring. That isn’t translating into fewer openings, though. The yawning disparity between open positions and workers willing to fill them will keep upward pressure on wages, and thereby ensure the risk of a wage-price spiral remains on policymakers’ radar.

Expect Larry Summers tweets. 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 Summers and Olivier Blanchard think that’s exceedingly unlikely. The last JOLTS report was a round for Powell. This one was a round for Summers and Blanchard. The labor market remains a funhouse mirror (figure below).

Part of the problem is (still) 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.” The unemployment rate moved lower in the last jobs report, alongside a decidedly unwelcome downtick in participation.

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. That ratio rose with Tuesday’s data (it’ll be updated again Friday after the NFP report).

The quit rate was steady at 2.7% for a third month. The total number of quits fell slightly, but remained near a record high (figure below).

Needless to say, layoffs loitered near all-time lows. You’re reminded that job “switchers” have seen much brisker wage growth than so-called “stayers.” The Fed needs labor market churn to abate so that wage growth cools. There was no evidence for that in these numbers. 844,000 people quit a leisure and hospitality job over the month, for example.

Although the data is backward-looking, it nevertheless undercuts the soft landing story, particularly when considered with last week’s ECI data, which showed wage and compensation growth continued to run at a historically elevated pace during the third quarter.

Last month, while editorializing around JOLTS data for August, I called that month’s outsized decline in openings a “Lazarus moment” for the beleaguered soft landing tale. Tuesday’s data might’ve killed it again.


 

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7 thoughts on “‘Soft Landing’ Hopes Electrocuted By Million-Volt JOLTS Beat

  1. I suppose it depends upon your definition of soft landing. As long as most everyone that wants a job can find one, the “consumer” should remain strong and a recession if it happens will be mild.
    Or the JOLTS data could indicate a massive skills mis-match….

    1. If everybody who has a job is confident they can quit and find a new one that pays more, they’ll keep quitting and keep getting paid more. If that allows corporates to keep raising prices to consumers, it’s a never-ending exercise in tail-chasing. People will keep quitting to chase higher wages to pay for more expensive goods, and the companies who are hiring them at ever higher comp costs will keep raising prices to consumers to avoid eating it on the bottom line and irritating shareholders.

  2. Shareholders and labor are at odds with one another. Also in tandem.
    Higher interest rates are only going to help create inflation. And as odd as it seems it may be part of the problem at this point.
    Raising various taxes may be the only thing to slow it down at this point.

  3. We are entering the Millennial peak spending and earning years. Slowing the economy with counter cyclical policy can only end badly. If the Fed destroys employment and demand, it will just result in a pent up rally and expansion afterwards. The only way, THE ONLY WAY, fix the unemployment mismatch is to find 10 million immigrants and give them work visas. Start with amnesty for those already here, which is several million, but most are working already illegally, so this just makes them legal and paying taxes. Then beef up immigration resources and allow another several million in on work visas with priority to those with kids who can be labor fuel in 10-15 years. Biggest problem is xenophobia, let’s hope we can get a little over that.

    1. I am in 100% agreement.
      It is interesting to watch Corporate America work around this issue.
      Fast food restaurants quickly moving to food ordering/payment on a screen.
      Grocery stores and big box retailers are ripping out flooring and polishing the concrete so that a robot can clean floors at night.
      We probably don’t need 10 million immigrants- but we need a lot, for sure.

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