Bonds got off to a decent start in the overnight session with help from a lower-than-expected rate hike from the RBA (Australia’s central bank) and ongoing recovery in EU bond markets. Gains were in question until the 10am release of the JOLTS data (Job Openings and Labor Turnover Survey). Granted, gains still could be in question by the end of the day, but in the AM hours, anyway, JOLTS helped us remain in stronger territory.
The fact that we are forced to credit JOLTS with such a feat is rather stunning. Of all the labor market reports that sound like they should be important, JOLTS is by far and away the least historically relevant when it comes to market movement potential. Even the lowly weekly jobless claims data has a much stronger track record of mattering to the bond market.
We can’t really blame JOLTS for that directly. It’s more to do with the release schedule. Specifically, today’s JOLTS release covers the month of AUGUST. To put that in perspective, we’ve had August NFP data in hand for more than a month, and we’ll get SEPTEMBER’S NFP data the day after tomorrow. With that level of lag, it’s not hard to understand why JOLTS rarely moves markets.
But 2022 is a year for “rarely” to be in the spotlight. Powell set the stage for some heightened JOLTS sensitivity by mentioning it specifically several times this year, including at the press conference two weeks ago. He actually used the phrase “job openings” 3 times including the following statement: “job openings are incredibly high relative to the number of people looking for work.”
Earlier in the press conference, he pointed out that job openings had only begun to come down slowly, but still remained very high. He went on to lay out what was needed for a shift in the Fed’s restrictive outlook as follows: “First we’ll want to see growth continuing to run below trend, we’ll want to see movements in the labor market showing a return to a better balance between supply and demand, and ultimately we’ll want to see clear evidence that inflation is moving back down to 2 percent.”
As for “growth running below trend,” that is a work in progress. If measured by GDP, it’s already achieved. More data may join in the mix, such as the ISM Non-Manufacturing report tomorrow. Monday’s Manufacturing version of the ISM data was already showing some of the weakest growth since the pandemic lockdowns. All that to say, the “below trend growth” goal is on the table at the very least.
Speaking of pandemic lockdowns, that brings us to Powell’s next point and today’s thesis. The pandemic lockdowns created several anomalies in data and financial markets that were never seen before and in many cases, likely to never be seen again. Almost certainly, we won’t ever see a bigger relative decline in nonfarm payrolls or a more brutal spike in MBS spreads. The sharp drop in job openings (-1.210 million in April 2020) was another landmark piece of pandemic-related fallout. Before that, the biggest drop on record was less than 600k in a single month. After that, the biggest decline we’ve seen was 378k in May of this year. June declined negligibly and July paradoxically improved, widely seen as adding fuel to the Fed’s rising rate fire.
Today’s JOLTS release makes 378k seem laughable by comparison. Job openings dropped by a whopping 1.117 million–nearly matching the previous, thought-to-be-aberrant record. In other words, it was a big enough drop for this often overlooked piece of data to garner more attention from the bond market.
In addition to being big in its own right, it also contributes decisively to the sense of a broad labor market shift in the middle of 2022. Perhaps the Fed can begin to consider victory on 2 out of the 3 Powell goals stated above? Granted, they’ll want to see the unemployment rate move a bit higher, but this JOLTS data suggests that may already be a work in progress. From there, we would only need to see inflation coming back toward target levels before the Fed would be out of excuses to continue tightening.
Sidenote: the fact that JOLTS did what it did today and bond markets are currently fairly close to where they were before the JOLTS data serves as paradoxical evidence of just how much the market tends to look past this data. It definitely had an impact intraday, but it doesn’t look like it has been successful in singlehandedly shifting the tone surrounding the labor market. Now, if Friday’s NFP tanks, we can talk.
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