Labor Department Data
The US economy has been experiencing a robust recovery since the onset of the COVID-19 pandemic. However, recent data from the Labor Department shows that the ultra-tight US job market is loosening, as employment openings fell more than expected in March to the lowest level in nearly two years. This is a significant indicator that the labor market may be losing its steam, which could ease the pressure on the Federal Reserve to continue raising interest rates. In this article, we will explore the implications of this report on the stock market and the US economy.
The Job Openings and Labor Turnover Survey
The Job Openings and Labor Turnover Survey (JOLTS) is a monthly report released by the US Bureau of Labor Statistics. It provides valuable data on job openings, hires, quits, and layoffs, among other labor market statistics. The JOLTS report is considered a lagging indicator, as it typically lags behind the nonfarm payrolls number by about a month. However, it is still a useful tool for assessing the health of the US labor market.
According to the latest JOLTS report, job vacancies in the US totaled 9.59 million in March, down from 9.97 million in February and below the FactSet estimate of 9.64 million. This is the lowest total since April 2021 and cuts the ratio of open jobs to available workers to 1.6 to 1 after being around 2 to 1 for most of the past two years or so.
Read More: Concerns About US Job Market and Service Sector Growth
Implications for Inflation and Interest Rates
The JOLTS report is closely monitored by the Federal Reserve for signs of labor slack. A lower number of job openings is positive for inflation, as it indicates less pressure on wages. This, in turn, could ease the pressure on the Federal Reserve to continue raising interest rates. However, the stock market did not react positively to the JOLTS report, with the Dow Jones Industrial Average down more than 500 points on the session as investors remained concerned over the state of the economy and news that the US may hit its borrowing limit sooner than expected.
Manufactured Goods Orders
A separate report from the Commerce Department showed that orders for manufactured goods increased 0.9% in March, less than the 1.3% estimate. This suggests that the US economy may be facing headwinds, despite the strong recovery it has experienced since the pandemic began.
Investment Implications as Quits Hit New Low
Quits, which are considered a measure of worker confidence in the ability to leave one’s job and find another, declined by 129,000 to 3.85 million, the lowest level since May 2021 amid what had been dubbed the Great Resignation. This may indicate that workers are becoming less confident in the labor market’s ability to provide them with better opportunities.
Therefore, investors may want to focus on diversification and not put all their eggs in one basket. It may be wise to consider investments in different sectors, such as technology, healthcare, and consumer staples, that are less impacted by economic downturns. Additionally, investors may want to consider holding onto some cash reserves in case the market experiences a significant correction.
Finally, it is crucial to keep a long-term investment horizon and avoid making investment decisions based on short-term fluctuations. The stock market is volatile, and the best investment strategies are typically those that are focused on long-term goals rather than short-term gains.
The Need for Another Rate Hike
The JOLTS report’s latest data shows that employment openings pulled back further in March, hitting a nearly two-year low. While this is a positive sign for inflation, the stock market has reacted negatively to the report. This suggests that investors are concerned about the state of the US economy, particularly news that the US may hit its borrowing limit sooner than expected. Meanwhile, Ronald Temple, chief market strategist at Lazard, suggests that the Federal Reserve may still see this data as reaffirming the need for another rate hike, which the market is expecting with a nearly 100% probability. This could further dampen investor sentiment and prolong the US economic recovery.
Read More: US Government Faces Significant Risk of Defaulting in June
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