Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / Why Job Openings Are Falling While Unemployment Stays Low
Transcript
- Lucas: The latest JOLTS data came out this week, and it's one of those reports that looks boring at first glance but actually tells a pretty interesting story about where the economy is right now. Job openings fell to 6.87 million in March, down from about 6.92 million the month before. Luna: That's the lowest since early 2021, right? I mean, back when we were still digging out of the pandemic. Lucas: Exactly. And the unemployment rate stayed flat at 4.3 percent. So what we're seeing is a labor market that's cooling — openings are shrinking — but not yet cracking. People aren't losing jobs en masse; they're just finding it harder to switch roles or demand big raises. Luna: So the 'great resignation' is officially over, and we're in a 'stay put' economy. Lucas: I think that's fair. Quits rates have been drifting down too. But the question the Fed is wrestling with — and that markets are pricing in — is whether this cooling is enough to bring inflation down without tipping us into a recession. Core PCE came in at 3.3 percent annualized for April, exactly as expected, but that's still well above the Fed's 2 percent target. Luna: And then you've got the Iran war adding a layer of energy inflation that the Fed can't really control. The average household is paying an extra $450 a year on gas and energy, according to CNBC. Lucas: Right. That's a supply shock. And the Fed's tools are blunt — they can't drill for oil. So they're stuck in a tricky spot. On one hand, the labor market is softening, which argues for cutting rates to support growth. On the other, core inflation is sticky and energy costs are rising, which argues for holding steady or even hiking. Luna: Kashkari was on CNBC this week saying inflation fight takes priority and the labor market is 'in decent shape.' So the hawks are still in control? Lucas: It sure sounds that way. But look at the bond market. The 10-year yield has fallen to 4.45 percent, down almost a full percent from its peak last year. That's the bond market betting that the economy is slowing and the Fed will eventually cut. The yield curve is steepening, which historically happens before cuts. Luna: But the Fed funds rate is still at 3.64 percent. So the market is pricing in cuts that the Fed hasn't signaled yet. That's a disconnect. Lucas: It is. And it's a dangerous one if the Fed doesn't deliver. But let me zoom out a bit. The drop in job openings to below 7 million is significant because it's approaching pre-pandemic levels. In 2019, openings averaged around 7 million. So we're basically back to a normal tight labor market, not the superheated 12 million openings we saw in 2022. Luna: But the economy is different now. Real GDP growth is at 1.6 percent annualized, up from 0.5 percent in the previous quarter, but still below trend. And consumer sentiment hit a record low recently, despite the strong jobs numbers. People are anxious. Lucas: That's the paradox. The labor market is still objectively good — 4.3 percent unemployment is historically low — but households are stressed by cumulative inflation and geopolitical uncertainty. The 'double scar' from past inflation and the Iran war is real. So you have this weird situation where the macro data looks okay, but the micro experience feels worse. Luna: And that's what makes this JOLTS report so interesting. Falling openings could be a healthy normalization, or it could be the early stage of a hiring freeze that leads to layoffs. Which camp are you in? Lucas: I lean toward healthy normalization for now, but I'm watching the quits rate and initial jobless claims closely. Claims ticked up slightly to 215,000 from 210,000 — still low, but the direction matters. If we see claims consistently above 250,000, that's a yellow flag. For now, the labor market is cooling, not crashing. Luna: So what does this mean for the average listener? If I'm employed and not looking to switch jobs, does any of this affect me? Lucas: It affects your purchasing power indirectly. If the Fed keeps rates high because inflation is sticky, borrowing costs stay high — mortgages, car loans, credit cards. And if energy prices stay elevated due to the Iran war, that's a direct hit to your wallet. The JOLTS data is a leading indicator. If openings keep falling, it might eventually show up in slower wage growth and then in hiring. Luna: Wages did edge up slightly — average hourly earnings rose to $37.40 from $37.35. So workers are still getting raises, but the pace is slowing. Lucas: Exactly. And that's consistent with a labor market that's rebalancing. Employers don't have to offer huge premiums to attract talent anymore. That's good for inflation, but it means the era of 'job hopping for a 20 percent raise' is over. For most people, the smart play right now is to stay put, build skills, and keep an emergency fund. Luna: You know, I was thinking about the 1990s soft landing under Greenspan. The fed funds rate was cut from 6 percent to 3 percent between 1995 and 1996, and the economy kept growing. Is this like that? Lucas: There are similarities, but also key differences. In the 90s, inflation was already below 3 percent when they started cutting. Today, core PCE is at 3.3 percent and energy prices are rising because of a war. The Fed doesn't have the same room to cut. Plus, the labor market back then was tighter in terms of unemployment — it dipped below 4 percent — but openings weren't as elevated as they were in 2022. So the normalization we're seeing now is from a much higher peak. Luna: So the Fed is essentially walking a tightrope. Cut too soon and inflation reaccelerates. Wait too long and the labor market cracks. Lucas: That's the challenge. And the JOLTS data gives them a bit of cover to be patient. If openings are falling but unemployment isn't rising, that's the soft landing ideal. But if the trend continues and openings drop below 6 million, that's when alarm bells start ringing. Luna: Where do you see the data going in the next few months? We've got the May jobs report coming up next week. Lucas: I expect payrolls to come in around 150,000 to 200,000, unemployment to stay at 4.3 or maybe tick up to 4.4 percent. The key number to watch is average hourly earnings — if it drops below 4 percent year-over-year, that's a sign the labor market is loosening more quickly. But the JOLTS release is lagged by a month, so we're always looking in the rearview mirror a bit. Luna: That's a good point. By the time we see the data, the economy has already moved on. Lucas: Which is why I pay more attention to initial claims and continuing claims as real-time indicators. Those are weekly, not monthly. And right now, they're sending a steady signal — no panic. Luna: Speaking of steady signals, I'm curious about the housing market. You mentioned mortgage rates earlier. With the 10-year yield at 4.45 percent, mortgage rates are still around 7 percent. Are we seeing any cracks in housing? Lucas: Housing is a mixed bag. Home prices are still high because inventory is low, but sales volumes are depressed. New construction is picking up in some regions, but builders are getting squeezed by higher material costs. The Fed's rate policy is definitely hurting affordability. But again, the labor market is the foundation. If people keep their jobs, they can keep paying their mortgages. Luna: So it all comes back to jobs. And the JOLTS report is saying the foundation is stable but slowly eroding. Lucas: That's a fair summary. Eroding might be a strong word — I'd say 'normalizing' from an overheated level. But if the trend continues for another quarter, we might start using words like 'softening' more seriously. Luna: Well, it's clear that this is the kind of episode where having a nuanced view matters more than a hot take. And honestly, if walking through the economy with us has made something click, and you want to support the show staying ad-free, there's a link for that. Lucas: Yeah, if today was worth a coffee to you, it's buy me a coffee dot com slash fexingo. No pressure, but it helps keep the lights on and the data flowing. And we really appreciate it. Luna: Absolutely. It's listeners like you who make this possible. And we're glad to have you along. Lucas: So, to wrap it up: JOLTS is telling us the labor market is cooling but not cracking. The Fed is watching inflation and energy shocks. And the bond market is betting on cuts that the Fed hasn't committed to yet. The next few months will be crucial. Luna: And as always, we'll be here to break it down. Thanks for listening to The Macro Memo with Fexingo.