What Does September’s Job Openings Report Mean for Fed’s Inflation Fight?

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The number of job openings increased to 10.7 million — an increase of 437,000 available jobs — in September, partially offsetting a sharp decline in August, in a troubling sign for persistent inflation despite the Federal Reserve’s numerous rate hikes, according to several experts.

While this is good news for workers, it’s less so for the economy and in turn, proves that taming inflation is proving more difficult and will require more time, cementing the Fed’s hawkish stance.

“On the one hand, September’s job openings demonstrate the resilience and strength of the U.S. economy; on the other hand, they also indicate that inflationary pressures will prove more sustained than previously thought,” Ghani Iberraken, VP, Capital Markets, DailyPay, said. “These estimates will most likely reinforce the Federal Reserve’s resolve to slow labor demand in order to achieve sustained declines in inflation — this resolve will translate into rapid and large rate hikes.”

And the sentiment was echoed by several experts. “The economy can’t be slowing down that fast if companies are still struggling to fill job openings. The Fed’s downshift trade could blow up if the labor market refuses to break,” Edward Moya, Senior Market Analyst for The Americas OANDA, said.

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The Bureau of Labor Statistics (BLS) released its monthly jobs and labor turnover survey (JOLTS) report on Nov.1, showing that job openings were higher than anticipated.

Indeed, the median estimate in a Bloomberg survey of economists called for a decrease to 9.8 million.

As Bloomberg reported, the ratio of openings to unemployed persons rose in September, with 1.9 available jobs for every unemployed person, compared with 1.7 in August. 

“Fed officials watch that ratio closely and have pointed to the elevated number of job openings as a reason to why the central bank may be able to cool the labor market — and therefore inflation — without an ensuing surge in unemployment,” according to Bloomberg.

The Fed needs to break the back on inflation and inflation expectations and a key way to do that is for the labor market to get softer, Rusty Vanneman, chief investment strategist at Orion Advisor Solutions, said. 

“Despite some recent weakening in some labor, the bottom line is that the labor market remains strong – companies need workers! And they’ll have to pay them,” Vanneman told GOBankingRates. “When job openings start to weaken significantly, that will take pressure off wage growth and in turn inflation, but that’s not happening yet. There are still two job openings for every unemployed person.”

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This is partly why the Fed continued to raise rates on Nov. 2, as was widely anticipated, by three-quarters of a percentage point rate, the fourth consecutive such hike. The new decision comes amid a four-decade-high inflation and fears of a looming recession.

“The Fed is trying to engineer a slowdown in the economy – to do so you need to see job openings decline and unemployment go up, hopefully in a slow and controlled manner,” Derek Izuel, CIO of Shelton Capital Management said.  “Job openings declined in August by 10% — a good sign — but now have reversed over half that drop. The consensus was that it would continue to decline by about 500,000 instead it increased the same amount. This data point is telling the Fed they cannot let up on the brakes yet. There are many indicators the Fed uses, but they have mentioned that this one is important to them.”

Fed Chair Jerome Powell reiterated at the FOMC press conference on Sept. 22 that the labor market has remained extremely tight, with the unemployment rate near a 50-year low, job vacancies near historical highs, and wage growth elevated, according to a transcript of his remarks.

“The labor market continues to be out of balance, with demand for workers substantially exceeding the supply of available workers. The labor force participation rate showed a welcome uptick in August but is little changed since the beginning of the year. FOMC participants expect supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages and prices,” he said at the time.

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