Jobs data also showed cracks, does it mean that the Fed’s eagle won’t be long?
How long will the Fed continue to hit the stock market and drive the U.S. economy lower?
That’s the question every trader is asking right now, as the S&P 500 has brushed past a bear market 3 times in the past week and is poised to go even lower, especially now that the Fed appears to have given up on a soft landing, and Willing to gamble everything to contain inflation, even if it means a possible hard landing.
The answer is simple: Now Wall Street is convinced that inflation has peaked, both on the sell side – Goldman Sachs expects core inflation to fall in the coming months:
Still on the buy-side – a record 68% of respondents in the latest fund manager survey expect inflation to fall in the coming quarters:
With GDP on the brink of a technical recession and housing impending collapse:
Only employment is still relatively strong .
In other words, those wondering when the Fed will abandon its tightening policy will only focus on negative changes in the labor market because, as Bank of America economists said last week, it will be difficult for the Fed to do so without raising the unemployment rate significantly . slashing inflation to the 2% target, which in turn would require a sharp drop in labor demand . In other words, the Fed wants a mild recession (but certainly not a depression) to hit labor demand and shorten the wage-price spiral.
So what data should traders focus on? Job postings are probably the best leading indicator of labor demand. The official data released by the Bureau of Labor Statistics (BLS) is the Job Openings and Labor Turnover Survey (JOLTS). The latest available data through March showed a total of 11.5 million job postings, nearly double the number of job losses.
One downside of JOLTS is that the data is fairly lag (it’s a month behind the latest jobs report), and in the current environment, trends can change quickly. To get a more accurate answer, Bank of America used job posting data from Revelio Labs to better understand real-time new labor needs. Unlike JOLTS, Revelio closely tracks overall job postings with a near 93% correlation, which measures new rather than overall job postings.
In April, new job postings fell by 2 million to 6.6 million, according to Revelio data. It was the largest monthly drop on record since May 2019.
Also, the range of drops is wide. 146 of the 147 industries reported by Revelio (almost every industry) recorded consecutive declines in new jobs. And the proportion of industries with a year-on-year decline in new jobs rose to 22.5%, the highest level since February last year.
In short, as Bank of America economist Stephen Juneau writes , the drop in hiring is a sign that labor demand is starting to cool.
Also, the gap between the number of new jobs and the number of voluntary departures may narrow, but is unlikely to be quite the same, according to April data obtained from JOLTS. Therefore, it is likely that only a further drop in new job postings will see the labor market cool, which in turn cools wage and price pressures.
In addition to Revelio’s data, there are many other signs that labor demand is slowing :
1) In the National Federation of Business (NFIB) Small Business Survey, the percentage of businesses planning to increase hiring fell 8% since December 2021 to 20% in April .
2) The challenger layoffs index rose 6% year-on-year in April, the first annual increase in 15 months .
3) The number of people with multiple jobs continues to grow . It’s the clearest indicator yet that the post-coronavirus “big quits” trend is now fading.
4) Clearer evidence of a continued rise in the number of “not retired” is shown by the latest data from Indeed, which shows that 3.3% of employees who “retired” a year ago opted for re-employment.
5) In addition to Revelio, a report by Bank of America analyst Sara Senatore showed that job growth in the restaurant industry has slowed sharply in a row .
Finally, there is growing evidence that the strength of the labor market has taken a hit recently, with companies like Amazon, Facebook, Walmart, Target, and Netflix all giving a negative orientation to employment of late. Last week, Bank of America’s trading arm also called it “the end of labor shortages.”
The term “labor shortage” has officially died down in the past week. Unemployment has soared and wages plummeted in just a few months. This confirms what the investment banks have said before: the recession will start in the second half of 2022, the Fed will end the rate hike cycle early, and will continue to cut rates and launch the latest quantitative easing policy sometime in early 2023.
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