JOLTS

A quick note on the Job openings and layoffs data, from overnight.

You can see (3rd row, 2nd column) the Job Openings data continues to revert to the long term time trend mean (little dashed line). That’s a “cooling” of the labour market data. Same with Quits (3rd column, 3rd row) where the level of quits rate is now well below the 2019 pre-pandemic level.

That’s the sort of thing that gives us confidence that the labour market is not overheating, and thus shouldn’t be a key driver of ongoing inflationary impulses.

What about the ECI (employment cost index) data from the day prior, which showed an overheated wages rate? That was the one that caused bond yields to lift by ~20bps and the market (equity market) to sell off.

Well, a little digging here is instructive. It looks like a) most of the spike was “catch up” from unionised workers (bottom right); you can see non-unionised workers had a sizeable lift in the ECI about a year ago, and that wage negotiations for union members is only just now rolling/washing through b) leisure and hospitality has clearly rolled over, and that’s important because leisure workers usually don’t have much bargaining power, and give a good indication of slack or tightness in labour markets.

As always, a reminder of why we do this. Monetary policy is very important, in the short to medium run, and, hugely important in the current environment with inflation fears, and, oddly enough, recession fears, coming and going / too-ing-and-fro-ing, rising and fading, in the background.

The answer does lie in diving/forecasting/guessing correctly which one of these indicators really matter, which one correctly portends the truth.

If you can guess that you can guess the soft or hard or no landing narrative, and likely, which asset classes benefit the most from any/all of those states.

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