Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / What Rising Job Openings Tell the Fed About Inflation
Transcript
- Lucas: So the April JOLTS report came out last week, and the headline number was pretty striking — job openings jumped to seven point six million, up from six point nine million in March. That's a big swing. Luna: Seven point six million — that's about seven hundred thousand more openings in a single month. Did anyone see that coming? Lucas: Not really. The consensus was for a modest increase, maybe to seven point one million. So this was a clear upside surprise. And it comes at a tricky time for the Fed, because they're trying to gauge how much slack is left in the labor market. Luna: Right, and we've been talking about the job market softening for months. The unemployment rate has been hovering around four point three percent. So this feels like a counter-signal. Lucas: Exactly. And look, I think this is actually a really important data point for understanding where inflation might head. Because if employers are still desperate to hire, that puts upward pressure on wages, and wage growth feeds into services inflation. Luna: And the Fed hates that. Lucas: They do. And speaking of the Fed — we try to keep this show free of ads because we think the conversation should stand on its own. If you've been finding these macro deep dives useful, you can support that choice at buy me a coffee dot com slash fexingo. No pressure, just an option for those who want to keep it ad-free. Luna: Yeah, we appreciate everyone who listens. And the JOLTS number is a perfect example of why we dig into the details — the headline can change the narrative pretty fast. Lucas: So let's talk about what the JOLTS number actually means for inflation. The Fed's preferred measure is core PCE, which is running at about two point eight percent annualized as of April. But the labor market is the engine behind a lot of that services inflation. Luna: And we saw average hourly earnings tick up to thirty-seven dollars and fifty cents an hour in May. That's a three point two percent year-over-year gain, which is still above what the Fed considers consistent with two percent inflation. Lucas: Right. So more job openings mean employers are competing for workers, which pushes wages higher. And if productivity doesn't keep pace, those higher labor costs get passed on to consumers as higher prices. Luna: But there's another angle here. The JOLTS report also showed that quits held steady and hires actually dipped a bit. So the labor market isn't as frothy as the openings number alone suggests. Lucas: That's a good point. The quits rate is often seen as a measure of worker confidence — if people are quitting, they think they can find a better job. And that rate has been declining from the peaks we saw in 2022. So the jump in openings might be more about structural mismatches than broad-based demand. Luna: And that's a different problem for the Fed. If the issue is that workers don't have the skills for the jobs that are available, then raising interest rates won't necessarily solve that. Lucas: Exactly. And that's the nuance that often gets lost in the headlines. The bond market seems to be picking up on this. The ten-year breakeven inflation rate, which is a market-based measure of expected inflation, dropped to two point two six percent this week. That's down from two point two nine last week. Luna: So the bond market is saying inflation expectations are actually cooling, even with the hot JOLTS number. Lucas: Right. And that's interesting because the ten-year Treasury yield itself has been creeping up — it's at four point four six percent now. So real yields are rising, which is a tightening of financial conditions. The bond market is basically doing some of the Fed's work for them. Luna: So where does that leave the Fed? They're meeting next week, and the fed funds rate is at three point six three percent. Do they even have room to cut? Lucas: I think the JOLTS number makes a cut less likely in the near term. Chair Warsh, in his first meeting last week, signaled that the Fed is in a data-dependent mode. And this data point argues for patience. Core CPI is still at three point three percent year-over-year, and with job openings surging, they don't want to ease prematurely. Luna: But if the bond market is signaling lower inflation expectations, doesn't that give the Fed some cover to cut? Lucas: It should, in theory. But the Fed has been burned before by easing too early — think 2021 when they called inflation 'transitory'. They're likely to want to see a sustained trend in the data, not just one month's JOLTS number. Plus, the job openings data is notoriously volatile. Luna: Yeah, the margin of error on JOLTS is pretty wide. So one month's jump might not be a trend. Lucas: Exactly. And that's why I think the key takeaway here is that the labor market remains a wild card for the inflation outlook. If openings stay elevated for another two or three months, then the Fed will have to reconsider its stance. But if it's a one-off bounce, then the disinflation narrative stays intact. Luna: What about the broader economic picture? Real GDP growth annualized was one point six percent in the first quarter, which is okay but not great. And we've got geopolitical risks with the Iran situation and the UK economy shrinking. Lucas: Right, there's a lot of crosscurrents. But the domestic consumer is still spending, which is why the labor market matters so much. If people have jobs and wages are rising, they spend. And that spending keeps inflation sticky. Luna: So the Fed is stuck between a rock and a hard place. They want to avoid a recession, but they also need to bring inflation down to two percent. Lucas: And the JOLTS data suggests that the labor market is still too hot for them to feel comfortable cutting rates. I think the market's pricing for a rate cut in September is probably too optimistic. Luna: What about the composition of the openings? Were there any sectors that stood out? Lucas: Yeah, the biggest increases were in professional and business services, which added about two hundred thousand openings, and in leisure and hospitality. Those are sectors that have been struggling to fill positions for a while. So it might be more about demand for specific skills rather than a broad-based surge. Luna: That makes sense. And if companies are posting jobs but not filling them, that's different from having actual hiring demand. Lucas: Right. And that's why the hires number matters. Hires actually fell slightly in April, so employers are posting more but hiring less. That could be a sign of caution — they want to have candidates in the pipeline, but they're not pulling the trigger. Luna: So maybe the labor market is cooling in a weird way. More openings, but fewer actual hires. Lucas: Exactly. And that's the kind of detail you miss if you just look at the headline. So for the Fed, the JOLTS report is a reminder that the labor market is still tight in some dimensions, but not in others. And that complexity is why they're likely to stay on hold for now. Luna: And for listeners who want to dig deeper, the JOLTS data is released by the Bureau of Labor Statistics around the first Tuesday of every month. April's data came out on June 11th, so it's pretty fresh. Lucas: Good point. And we'll be watching the May JOLTS report in early July to see if this was a blip or a new trend. If openings stay above seven point five million, then the Fed's job gets harder. Luna: And if they drop back to seven million or below, then the disinflation narrative gets a boost. Lucas: Right. So for now, the macro picture is one of cautious uncertainty. The bond market is pricing in lower inflation, but the labor market is sending mixed signals. And the Fed is in wait and see mode. That's not a bad place to be, but it's not a clear direction either. Luna: And we'll keep an eye on the data and bring you the signals that matter. Lucas: Exactly. That's what this show is about. Thanks for listening, and we'll be back tomorrow.