Interest Rates Love Jobs Data

This was a holiday-shortened week with the Labor Day holiday closing markets on Monday. Despite the loss of a day, there wasn’t a loss of extremely important data, mostly focused on employment.  

• Wednesday saw Job Openings and Labor Turnovers (JOLTS), the Atlanta Federal Reserve’s (Fed) GDP estimate for the 3^rd quarter, and some interesting comments from Fed Governor Waller.  
• Thursday brought the important ADP Private Employment report and Initial and Continuing Unemployment Claims.  
• Finally, Friday saw the all-important Bureau of Labor Statistics (BLS) Jobs report for August.

JOLTS Report Shows Job Openings Shrinking

JOLTS showed that job openings fell 176,000 to 7.18M, which was 219,000 lower than estimated. The prior month was also revised lower by 80,000. 

In the post-COVID age, many jobs are remote, and this allows employers to post the same job in several different geographic areas. This likely leads to significant overcounting of job openings. In comparison, the end of Q2 of 2022 saw 12M job openings. 7.18M is almost half in three years. 

V/U Ratio Falls Below 1 for First Time Since 2018

Another indicator of weakness in the jobs market is the V/U Ratio. This is the ratio of job vacancies as shown on the JOLTS report to the unemployed, as can be seen in the BLS Jobs report. 

For the first time since February 2018, this ratio has fallen below 1. What does this mean? It signifies that there are more people unemployed than possible job vacancies for them to fill.   

Fed’s Waller Signals Support for Rate Cuts

Fed Governor Christopher Waller had an interesting interview on CNBC on Wednesday. He reaffirmed his belief that rate cuts are warranted and that the labor market is showing weakness. He said that when the labor market turns bad, it happens fast, and the Fed needs to be proactive rather than reactive to this change. He also stated that he feels the Fed is restrictive by 1.25-1.5%, meaning rates can be lowered by that amount before they start to encourage growth and be accommodative.  

Atlanta Fed Cuts Q3 GDP Estimate to 3%

Atlanta’s Fed released its updated Q3 GDP forecast, which came in at 3%, reduced from 3.5%. This is a bit of an outlier, as other economists and reports project the GDP range at between 0% and 2%.  

ADP Report Misses Expectations

The August ADP report measures private company payrolls by one of the country’s largest payroll companies. It doesn’t take into account government jobs. It showed only 54,000 job gains, weaker than the 75,000 expected, which is itself a weak estimate. ADP’s Nela Richardson gave an interview on CNBC and stated that workers are working 2 hours less per week than before the COVID pandemic. This cutting of hours is in lieu of job cuts, but is still devastating to the economic outlook.  

Jobless Claims Climb Again

Unemployment/Jobless claims rose for first-time filers to 237,000. Continuing claims remained above the important 1.9M figure, still around the highest level since 2021. Bonds rallied to 11-month highs, pushing rates down after this news.

BLS Jobs Report Misses Big

Markets rallied big on Friday due to another extremely weak jobs report from BLS. The markets were expecting 75,000 jobs created, but only saw 22,000. Pouring salt on that wound, negative revisions of the prior month’s jobs showed June’s number for the first time in 54 months was -13,000. What is crazy about this is that June’s numbers were reported as 147,000 jobs gained. When this came out at the beginning of July, it was so unexpectedly good that mortgage rates jumped between .25% and .375. Imagine what could have been for all the people who had to lock in those higher interest rates at that time if the report had been accurate. 

Unemployment Rises to 4.3% With Concerning Details

The report also showed that the unemployment rate increased to 4.3%. While that doesn’t sound like a big jump, a deeper dive shows incredible weakness. There were 357,000 full-time jobs lost, while there were 587,000 part-time jobs gained. People who were considered “working part-time because they can’t find full-time work” rose to 1.31M. That’s the second-highest level since the worst part of the COVID pandemic.  

Looking Ahead

Next week brings one final inflation report before the Fed’s September meeting and probable rate cut:

Wednesday, September 10: 

• Producer Price Index (PPI) – Wholesale Inflation

Thursday, September 11: 

• Consumer Price Index (CPI) – Consumer Inflation
• Initial and Continuing Jobless Claims

Friday, September 12: 

• University of Michigan Consumer Sentiment