Stansberry Research

Job Openings Disappoint But Still Points to Loosening Labor Market

C. Scott GarlissStansberry NewsWire

Labor market tightness is slowly easing...

This morning, the U.S. Bureau of Labor Statistics ("BLS") released its Job Openings and Labor Turnover Survey ("JOLTS") for November. The data showed companies are seeking to fill roughly 10.46 million positions – more than the expected 10.05 million positions. At the same time, October's figures were revised higher from 10.33 million to 10.51 million.

November's data is well below March's peak of roughly 11.9 million job openings. So, the numbers tell us that available employment opportunities are shrinking. That's a trend we want to see. However, that deceleration has slowed, which was a disappointment...

The JOLTS survey tells us the number of hires, quits, and job openings each month. To generate this survey, the BLS collects data from 20,700 nonfarm and government businesses and estimates changes on a national basis. So it helps the Federal Reserve and money managers gauge the job market's relative tightness. In other words, they can see how easy or difficult it is for an individual to find work.

We can also see this by comparing the survey's metrics with the number of people out of work and looking for new jobs. The November BLS number showed just over 6 million total unemployed individuals in the labor force, slightly lower than the October number of more than 6.1 million. In other words, with 10.3 million job openings, there are roughly 1.7 available jobs for every unemployed person...

Fed Chairman Jerome Powell has said that he wants to see this ratio between the number of job openings and the total number of unemployed folks move lower. Prior to the COVID-19 pandemic, the number averaged around 1.0 compared with the current average of around 1.2.

Even though the current ratio of 1.7 hasn't really budged in the last month, it's far better than the figure of 2.0 available jobs per unemployed individuals we saw in March, last year. And remember, the November tally is despite a drop in the number of individuals seeking employment which would typically signal an increase.

While it may not be the destruction of employment opportunities that the central bank seeks, there is a positive aspect to the result... the numbers are backward-looking. As a result, it's unlikely they're representative of the current labor market picture.

So, let's consider the results from a monetary policy perspective...

The Fed has targeted two key metrics it wants to bring back into balance in its fight against inflation: the supply-and-demand dynamics in the housing and labor markets.

Housing is a major component of consumer inflation. By driving up the cost of a home loan, the central bank is expecting demand to fall, supply to rise, and prices to drop... which would bring down overall inflation growth.

That scenario is starting to play out, as prices have contracted for four straight months according to S&P CoreLogic Case-Shiller data. And, as we keep going up against more difficult comparisons heading into the spring, prices are likely to show further declines.

The central bank has a similar outlook for the job market...

Labor costs are an important component of business inflation. When there are fewer workers available, companies have to pay more to obtain new employees. Those costs are then passed on to the consumers as companies raise prices for their goods. So, by increasing the pool of available workers, the Fed is anticipating wages will drop, easing inflation growth for businesses.

Today's numbers may have been a bit higher than Wall Street had hoped, but the trend is still headed in the right direction. Again, we'll want to see this ratio continue to move lower. In fact, a sharp drop would be ideal.

Either way, a drop in the number of available jobs will signal the labor market is steadily loosening once more. That would give the Fed more room to slow the pace of rate hikes... or even pause them altogether.