Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / The JOLTS Surge That Changes Everything About the Labor Market
Transcript
- Lucas: Job openings surged to 7.6 million in April. That's the highest reading in nearly two years. And the immediate take from a lot of headlines was — labor market is hot, the Fed can't cut rates. But I think that story is missing something. Luna: Missing what? Because on its face, seven point six million openings does look like a tight labor market. Lucas: It does. But look under the hood. The prior month — March — was revised down to 6.9 million. So the month-over-month jump is about 700,000 openings. That's a massive spike. But the unemployment rate stayed at 4.3 percent. And hiring? Nonfarm payrolls only added about 158,000 in April. So you have a huge jump in openings but not a huge jump in actual hires. Luna: So companies are posting more jobs but not filling them faster. That could be a sign of mismatch — or maybe just wishful hiring. Lucas: Exactly. The JOLTS data has been noisy since the pandemic. Response rates dropped, and the Bureau of Labor Statistics has acknowledged some volatility. What I find more interesting is the quits rate. That's usually a sign of worker confidence. Quits have been trending down. In April, quits were basically flat at 2.4 percent. Luna: So openings go up, but quits don't. That doesn't sound like workers are jumping ship for better opportunities. More like employers are posting roles they can't fill. Lucas: Right. And layoffs — those have been ticking up. Initial jobless claims just hit 225,000 for the week ending May 30, up from 212,000 the prior week. So you have a bifurcated picture: openings at a high, but hires and quits soft, layoffs creeping higher. Luna: That feels like a market that's cooling beneath the headline. The Fed must be watching this closely. Lucas: They are. The Fed funds rate is at 3.62 percent, and the market is pricing in a cut later this year. But if the Fed looks at the JOLTS number in isolation, they might think the economy is still too hot. The trick is that JOLTS is a lagging indicator that can be misleading in real time. What matters more is the trend in hiring and wage growth. Luna: Wage growth — average hourly earnings were up to $37.40 in April, that's about a 3.3 percent annualized pace. That's not accelerating, but it's not falling either. Lucas: And that's the kind of number the Fed can live with. Sticky but not accelerating. If wage growth were surging alongside openings, then you'd worry about a wage-price spiral. But that's not happening. The real story is that the labor market is rebalancing — just slowly and unevenly. Luna: So is the JOLTS surge a false signal? Should the Fed ignore it? Lucas: I wouldn't say ignore. But I'd put it in context. The openings rate — openings as a share of total employment — is still below where it was in 2022. And the ratio of openings to unemployed workers is about 1.2 to 1. That's not as tight as the 2-to-1 we saw in 2022. So the market is still tight relative to pre-pandemic, but not as hot as the headline suggests. Luna: One point two to one — that's still above the pre-pandemic ratio of about 0.7 to 1. So there is some tightness. Lucas: There is. And that's why the Fed is cautious. They don't want to cut rates prematurely and reignite inflation. Core PCE is still at 3.3 percent. The 10-year breakeven inflation rate — that's the market's expectation for average inflation over the next decade — is at 2.38 percent. That's above the Fed's 2 percent target. So the bond market is saying inflation isn't vanquished. Luna: But if the labor market is actually cooling beneath the surface, then the risk is the Fed stays too tight for too long. Lucas: That's the classic policy mistake. And it's why I think the JOLTS number — as impressive as it looks — shouldn't be the reason the Fed holds off. The broader picture is that GDP growth slowed to an annualized 1.6 percent in Q1 2026. That's not booming. And long-term unemployment is starting to rise — the CNBC headline from yesterday points to that hidden cost. Luna: So we have a bunch of contradictory signals. Openings up, hiring flat, layoffs up, long-term unemployment up, GDP slow. It's messy. Lucas: It is. And I think the honest take is that the economy is in a weird transition. The pandemic-era distortions are still working their way out. JOLTS is one of those series that got really weird during COVID and hasn't normalized. The BLS even changed its methodology. So I take the 7.6 million with a grain of salt. Luna: And speaking of taking things with a grain of salt — if you found this breakdown useful, this kind of ad-free analysis is only possible because of listener support. You can keep it going by buying us a coffee at buy me a coffee dot com slash fexingo. Lucas: Yeah, seriously. We don't run ads, we don't have sponsors. It's just us and our listeners who find value in cutting through the noise. If today helped, that link is the simplest way to keep the lights on. Luna: Exactly. And we mean it — no pressure. But if it added something to your day, we'd appreciate it. Lucas: Alright. So back to the JOLTS surge. The other detail I want to point out is that the increase was concentrated in a few sectors. Professional and business services added about 200,000 openings. Retail trade added about 150,000. But manufacturing was flat. Construction actually declined slightly. Luna: So it's not broad-based. That makes the headline even more misleading. Lucas: Right. And if you look at the ADP private payrolls number for May — that came out yesterday at 122,000. That's stronger than expected, but it's not a boom. So the economy is adding jobs, but not at a pace that would cause overheating. The JOLTS number might just be noise. Luna: So what do you think the Fed does at the next meeting? Another hold? Lucas: I think they hold. The Fed is data-dependent, and the data is contradictory. They'll want to see a few more months of payrolls and inflation prints. But if we see another JOLTS surge alongside weak hires, I think they'll start looking through it. The market is already pricing in a cut by September. Luna: And if they don't cut by September, what then? Lucas: Then the risk of a policy error grows. The real economy is slowing — GDP growth at 1.6 percent is below potential. And if the labor market starts to crack, the Fed will have to play catch-up. That's the scenario that keeps me up at night. Luna: So the JOLTS surge is either a phantom or a warning. Which one do you lean toward? Lucas: I lean toward phantom — but with a caveat. If the surge persists for another two or three months, then we have to take it seriously. But one month of noisy data doesn't change the underlying trend. And the underlying trend is that the labor market is gradually cooling, not re-accelerating. Luna: Good to have that on the record. So we'll watch the next JOLTS release in July. Lucas: We will. And in the meantime, we'll keep an eye on jobless claims and payrolls. Because those are the numbers that actually move the needle for the Fed.