Yesterday we explained that good news is bad news. Financial markets on Tuesday confirmed the corollary: bad news is good news.
The bad news was delivered from the August Job Openings and Labor Turnover Survey, or JOLTS. This showed that job openings fell by 1.1 million to 10.1 million. That is the largest ever one-month drop excluding April of 2020, when openings shrank by 1.2 million.
It’s worth pausing here to note that the economy just experienced a contraction in job vacancies similar to what we saw when much of the economy was locked down in an attempt to stem the spread of COVID. It’s not quite as bad because the economy lost nearly that many job openings in March of 2020 also. Last month we actually added job openings.
The stock market thrilled to the signal that the labor market was cooling down. Investors see the decline in job openings as an indicator that the Federal Reserve’s tightening has begun to work, draining some inflationary pressure and perhaps allowing the Fed to slow the pace of hikes or stop raising rates at a lower level. A gentler path for interest rates means lower discount rates for future cash flows, which means stocks move high.
The trouble is that this is just one month of data and it is two months old. It may be the beginning of a trend downward in openings, but that remains to be seen. What’s more, even with the historically large decline, job openings remain incredibly high. Here’s a chart of the absolute number of openings since the turn of the century. It nicely brings home just how strikingly high job openings are right now.
The 1.1 million decline in vacancies should also be looked at in the context of the total number of vacancies. When we lost 1.2 million in 2020, that was 20 percent of job openings. Now it is just 10 percent. That’s a large decline, but not record-shattering. We’ve seen that kind of decline both in and out of recessions in the past.
Similarly, while the ratio of vacancies to unemployed people dropped to 1.7 to one from nearly two to one, it is still very high. As Jason Furman explained in a tweet, the labor market has gone from being “very, very tight” to “very tight.” At 1.7 there’s likely still enough upward pressure on wages to keep the Federal Reserve concerned enough not to veer from the path of 75-basis point hikes at the November meeting.
There was also no progress on the quits. The total number of quits actually increased slightly, and the quits rate—the share of workers voluntarily leaving their job—remained at 2.7 percent. The quits rate is believed to be a key driver of wage inflation since job leavers see bigger wage gains. As well, employers are likely to raise wages of existing workers to prevent them from quitting. Prior to the pandemic, we had never in this century seen a quits rate above 2.4 percent. In the accommodation and food service sector, the quits rate actually went up to 6.5 percent, matching the all-time high hit in July of 2021. This suggests there’s still a lot of wage hike pressure in the services sector.
There is some genuinely good news on the horizon. We may be headed into a baby boom. Consumer sales analysts at Bank of America report that sales trends for pregnancy tests “accelerated meaningfully” beginning in May of 2020, and since June of 2020, unit sales growth has averaged 11 percent year-over-year. That’s a big acceleration from the prepandemic growth of around two percent. On a three-year basis, pregnancy test unit sales have tracked near or over 20 percent since March 2021, with May at 32 percent compared with a year ago and July up 33 percent. Historically, a tight labor market leads to an increase in births.
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