markets are ripping bc no one believes the fed will continue to raise rates. the jobs opening miss will drive inflation down

How the Fed thinks about things

• Dual mandate = price stability + maximum employment
• Right now maximum employment is becoming a lever for them to manage price stability

The labor market is weird

1. Meta is planning on slashing headcount for the first time in its history.
   1. Amazon Freezes Corporate Hiring in Its Retail Business
2. Initial Jobless Claims fell unexpectedly to below 200,000.

There’s two main ways to have a soft landing in the labor market

1. Layoffs - people lose their jobs, companies cut people etc
2. Increase in the labor force participation rate - more people come back into the labor market, which would work to push the unemployment number down, but wouldn’t be people losing their jobs

So what happened with the jobs number today?

• Today we got the latest JOLTS report - Job openings fell 1.1 million in August to 10.1 million
  • The drop in job openings last month (-1,117,000) is larger than the drop in job openings in March 2020 (-1,087,000).
• There was a substantial drop in job openings for the month of August
  • Job openings are what the fed looks at to see how the labor market is looking, so the slowdown is like “ok solid, things are working”
    • As of 9/30, postings on Indeed for 7 days or less were 55.2% above their pre-pandemic baseline. Four weeks prior, on 9/2, new postings were 62.6% above that baseline
  • August: the number of private sector job openings fell by an astonishing nearly 10%.
    • The labor market metric that Fed Chair Jay Powell pays close attention to, the ratio of job openings to unemployed workers, fell to 1.7 from 2 a month prior.
  • Essentially all of the decline in the ratio of openings to unemployed workers so far this year has come from fewer job ppenings. And the portion due to higher unemployment was from workers entering the labor force.
  • Quits in the restaurant and hotel industry actually jumped again in August.
  • Quits in professional and business services actually fell substantially, with the number down to its lowest level since March 2021.
    • This implies that service industry workers remain as confident as ever about their employment prospects, whereas those doing office jobs are getting considerably more anxious - it’s a shifting labor market
    • That’s consistent with the macro news, where employment overall remains strong but layoffs are gathering steam in tech and finance
• This is what Powell wants - "Job openings could come down significantly—and they need to—without as much of a an increase in unemployment as has happened in earlier historical episodes."
  • Openings may have dropped by over a million, but hires were unchanged at ~6.3 million.
  • Less competition for workers (less jobs) but hiring is still strong
• The Federal Reserve has given job vacancy data center stage in assessing the strength of the labor market. The theoretical and empirical issues with vacancies data show that this is a mistake.
  • The Federal Reserve should recognize the risk that chasing the vacancy statistic risks significant damage to American workers.