The number of job openings fell in May which shows that the economy is still cooling. This may be another instance of “good news is bad news” for the Federal Reserve, as the labor market shows no signs of abating.
In the past year and a half, the US unemployment rate has been at or below 4%, and the economy has added an average of 314,000 jobs per month through May.
Those in need of employment are gaining employment, and those with employment are being paid more. The sentiment of businesses and consumers remains resilient, and expenditure and investment are also relatively robust. In the first quarter, the gross domestic product, the broadest measure of economic output, increased by 2%.
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In spite of the fact that job growth is a sign of a thriving economy, Fed Chair Jerome Powell wants to see more labor market slack in order to reduce inflation. According to him, if there are too few people vying for too many positions, wages and inflationary pressure will increase.
This week, a slew of new unemployment data is anticipated to reveal that hiring in the United States finally slowed in June. Economists predict that the United States added 223,000 jobs in June, a significant drop from the 339,000 jobs added in May.
However, these forecasts have been wildly inaccurate. They predicted significant declines in hiring for April and May, but employment increased instead.
In order to return unemployment to where it believes it should be (5%), the Fed continues to raise interest rates. However, some economists are beginning to question whether this will ever occur.
Economists have maintained for decades that the natural unemployment rate in a robust, stable economy is 5%. In April, however, the unemployment rate reached a record low of 3.4%, with the 12-month average reaching a record low of 3.6%.
“Growth and unemployment rates at these levels are not only an indication of an extraordinary recovery from the previous recession, but also a sign that this is not your parents’ labor market,” said Joe Brusuelas, chief economist at RSM US. “Today, we believe that the natural rate of unemployment is closer to 4%, which reflects a combination of technologically-driven efficiency gains and demographic factors that dampen unemployment overall.”
He stated that there is less difficulty in obtaining employment than ever before due to the efficacy of online job searches and the newfound ability to work from home. This may reduce unemployment rates permanently. In addition, the massive retirement of baby boomers, the decline in immigration, and the long-term health effects of COVID have irrevocably altered the labor market.
Why it is crucial: According to StoneX’s chief market strategist, Kathryn Rooney Vera, these changes have prompted many economists to argue that the labor market is no longer significant. The gig economy, generational distinctions, and the retirement of baby boomers make this “unlike anything we’ve ever seen,” she stated. Consumers have not tightened their budgets at all, despite the Fed’s monetary policy tightening and the most anticipated recession in my lifetime.
Vera stated that people’s consumption patterns do not change when they are experiencing positive emotions.
In an economy where consumer expenditure accounts for approximately 70% of the gross domestic product, it would take significant negative detractors from other sectors to trigger a recession.
Brusuelas predicted that despite the inflation and interest rate disruptions of the past two years, the economic expansion will continue. Perhaps the time has come to embrace this as the new norm.
On Thursday, the May Job Openings and Labor Turnover Survey (JOLTS) and unemployed claims will be released, and on Friday morning, the June government unemployment numbers will be released.
Fed tensions are elevated.
According to minutes from the Fed’s most recent meeting, disclosed on Wednesday, officials engaged in a heated debate over whether to raise rates again in June before deciding to maintain the status quo.
In addition, they appeared fairly committed to raising rates once more at their meeting later this month. According to the minutes, “almost all” policymakers concurred that the Fed would likely need to implement additional tightening measures this year.
Sam Stovall, chief investment strategist at CFRA Research, said in a note on Wednesday, “The minutes indicate a great deal more discord than usual over the decision and the need for substantial compromise from the hawks to reach a unanimous vote.”
According to my colleague Bryan Mena, although policymakers ultimately voted unanimously to temporarily suspend their policy of tightening, the release revealed that officials frequently voiced concern about abandoning policy tightening too soon.
Stovall predicted that the hawks will likely have the upper hand at the impending July 25-26 Federal Reserve meeting. As a result, they will likely raise interest rates by a quarter of a percentage point, “as conditions will not have changed significantly since the June 14 meeting,” he added.
My colleague Jordan Valinsky reports that Christmas Tree Shops will liquidate all of its stores and go out of business unless a white knight appears at the eleventh hour.
The discount retailer, which sold a variety of home products, disclosed in a court filing last week that it had defaulted on a $45 million loan and would be closing approximately 70 stores in the coming weeks.
The company filed for Chapter 11 bankruptcy in May in an attempt to turn around its 53-year-old operations. However, its sales continued to decline, and Christmas Tree Shops ran out of funds necessary to proceed with the bankruptcy plan. Late last week, the company decided to shutter its doors permanently.
Bed Bath & Beyond, which is also insolvent, sold Christmas Tree Shops in 2020 to Handil Holdings, which intended to revive the discount retailer.
