Demand for Workers Cools, but Remains Elevated July job openings hit the lowest point since March 2021, but stayed well above prepandemic levels.
Job openings declined by 338,000 to a seasonally adjusted 8.8 million in July from the prior month, the Labor Department reported Tuesday. That was the lowest level since March 2021, but it was still well above prepandemic levels and the 5.8 million unemployed people in July. (…)
The number of layoffs was unchanged at 1.6 million last month. (…)
Speaking at the Kansas City Fed’s annual symposium last week in Jackson Hole, Wyo., Powell noted that while job openings have fallen, U.S. unemployment hasn’t risen, which he called “a highly welcome but historically unusual result that appears to reflect large excess demand for labor.”
Job openings in July increased in the information and transportation and warehousing industries, while declining in the professional and business services, healthcare and government sectors, the Labor Department said. (…)
The quits rate—or the number of job resignations as a share of total employment—edged lower to 2.3% in July from 2.4% the prior month. The rate averaged 2.3% in 2019, just before the Covid-19 pandemic hit the U.S. economy.
Economists see a high quits rate as a sign workers feel confident about their ability to find another job at equal or more pay. The rate hit a recent high of 3% in April 2022. (…)
U.S. employers added 187,000 jobs in July, reflecting a labor market that has slowed this summer but remains on solid footing. The Labor Department will release its August employment report on Friday. Economists estimate the economy added 170,000 jobs and the unemployment rate held at 3.5%. (…)
The WSJ’s Justin Lahart adds in Job Market Cools but Is Far From Freezing:
The Labor Department on Tuesday reported that there were a seasonally adjusted 8.8 million unfilled job openings on the last day of July, down from 9.2 million in June and 11.4 million a year earlier. That is still a ton of openings: 1.5 for each person counted as unemployed, in comparison with an average in 2019—a good year for jobs—of 1.2. But it still counts as a fresh sign that the job market is, in fact, cooling. (…)
The decline in quits should be especially cheering for the Federal Reserve, since quits might actually be the better reading on job-market tightness than openings. When people quit their job, it is usually because they have found a better one elsewhere, often at higher pay.
(…) the layoff rate—layoffs as a share of employment—was unchanged from a year earlier at 1%.
This is worth noting, since some high-profile layoffs, centered in the tech sector, that started making headlines last fall sparked worries that widespread job losses were on the way. But neither the Labor Department’s layoff figures, nor weekly unemployment claims, jumped higher. And lately, those big layoff announcements have subsided, too: Outplacement firm Challenger, Gray & Christmas reported that its monthly count of announced layoffs came to 23,697 in July, compared with 25,810 a year earlier. (…)
- Over past 3 months, 2.55 million job openings have been shed, which is largest 3-month decline on record (@LizAnnSonders)
And it has only happened during recessions.
Ed Yardeni:
The rallies in both stocks and bonds received a bullish jolt from June’s JOLTS report today showing fewer job openings and quits than expected during the month. These are bullish developments because they suggest that the labor market is “rebalancing” with demand for labor easing. Powell has stressed the importance of these two variable for the setting of monetary policy. They are both heading in the right direction, i.e., the one increasing the likelihood that the Fed is done raising interest rate. (…)
In previous recent remarks on the labor market, Powell noted that the quit rate (which is reported along with job openings in the JOLTS report) is highly correlated with measures of wage inflation. He has been rooting for the quit rate to decline to reduce wage inflation. That seems to be happening. The rate fell from 2.4% during June to 2.3% during July, the lowest since January 2021. It tends to lead wage inflation by about six months.
A recession also helped…
The BLS Job Openings remain 1.8 million (25%) above their pre-pandemic levels in July. Indeed’s Job Postings have stopped declining since the end of July (through Aug. 18).
From the August U.S. flash PMI:
August data indicated only a fractional rise in employment. (…) the pace of increase was the slowest over [the last 3 years]. (…) weak demand and lower new orders resulted in job shedding at some firms, with mounting wage costs compounding decisions to cut staff.
Services providers reined in hiring activity as employment in the sector was broadly unchanged on the month. A lack of new business and some instances of difficulties retaining staff dragged on jobs growth.
The rate of [manufacturing] job creation was the slowest since January, however, as voluntary leavers were often not replaced.
Strain on capacity dissipated further, as backlogs of work contracted at the sharpest rate since May 2020. Decreases in incomplete work at both manufacturers and service providers quickened from July.
Upward pressure on operating expenses from greater wage bills, increased raw material prices and higher fuel costs led to a reacceleration in the pace of input price inflation in August. The rate of increase in costs was sharper than the long-run series average, as manufacturers and service providers recorded faster upticks. Although much slower than those seen through the last two years, the pace of increase in cost burdens at goods producers was the steepest since April.
- The Dallas Fed’s manufacturing survey shows that businesses boosted wages this month. (The Daily Shot)
August Job Growth Among Small Businesses Unchanged from July
According to the Paychex | IHS Markit Small Business Employment Watch, the national Small Business Jobs Index — which measures the rate of small business job growth in the U.S. — is essentially flat at 99.10, a decrease of 0.04% in August. Meanwhile, an hourly earnings growth rate of 3.98% among U.S. small businesses is unchanged in August from July and below four percent for the second consecutive month.
“The Small Business Jobs Index moderated for the fifth consecutive month and the flattening of earnings growth both align with a stabilizing U.S. labor market,” said James Diffley, chief regional economist, S&P Global Market Intelligence.
“Our data indicates America’s small businesses are adding workers at a sustained and modest rate,” said John Gibson, Paychex president and CEO. “Regarding hourly earnings, last month we reported a growth rate below four percent for the first time since 2021. Seeing that trend continue this month is an encouraging sign that wages are normalizing along with overall inflation.”
Note that the 3.98% growth in hourly earnings is YoY. The one-month annualized growth increased from 3.1% in June to 4.2% in July and to 4.7% in August. The 3-month annualized growth is 4.0%, up from 3.5% in July.
Claudia Sahm: Sure, Consumers’ Savings Are Down, But So Is Their Debt If the Federal Reserve fails to account for the drop in household liabilities, it risks making a mistake the wrong call on interest rates.
(…) it’s a mistake to think of excess savings as just more money sitting in the bank; it is also about having less debt. And those with a lot of debt are more interest-rate sensitive. That’s who the Fed should keep a closer eye on.
There are several signs that households hold less debt than the pre-pandemic trend, including some very high-interest debt. Payday loans declined 65% during the first year of the pandemic, according to the Consumer Financial Protection Bureau. The growth in credit-card balances also fell early in the pandemic, according to the Federal Reserve Bank of New York. That lowered debt servicing costs, freed up money for spending and made many consumers less sensitive to increases in interest rates.
Delinquency rates are another sign that consumers have been managing their debt better even as interest rates rise. During the pandemic, delinquencies on credit cards fell to their lowest in the 20 years of the series. That was true of all consumer loans. Even now, with the Fed’s target federal funds rate and consumer interest rates notably higher, the delinquency rate on credit cards has only just returned to its pre-pandemic level. (…)
Adding the three rounds of stimulus checks together, an eligible family of four received $11,400, which would have allowed for a substantial debt reduction. (…)
So, what does this mean for the Fed? The effects of its rate hikes have been muted so far, in part, because households with less debt have had a cushion, unlike prior recessions, to buffer higher borrowing costs. People who, instead, put their excess savings in the bank have a cushion too, but interest rates matter less to them than those who paid down debt. Both are running out and should lead to reduced spending. But if the Fed doesn’t track the debt separately, it could underestimate the effects of excess savings running out on demand and make a policy mistake.
And someone faced with cutting spending or taking on more debt must consider the 20% interest rate that comes with credit-card debt these says. Debt balances rising back to the pre-pandemic trend would make those households responsive to the Fed hikes. The day “excess savings” overall run out is less important than when “less debt” ends.
This chart plots consumer debt against labor income all indexed to February 2020 = 100. Consumer loans are up 17.5% from their pre-pandemic level but labor income (black) is up 21.6%. Credit card debt is now rising fast but Other Loans (mainly cars) are falling.
Meanwhile, home (+45%) and equity values (+35%) are significantly above their pre-pandemic levels.
Lessons from Germany?
From the latest Germany PMI:
- German business activity suffered the steepest decline for more than three years in August, according to latest HCOB ‘flash’ PMI® survey compiled by S&P Global, as a deepening downturn in manufacturing output was accompanied by a renewed contraction in services activity.
- Manufacturing recorded a decrease in production for the fourth month running, with the rate of decline accelerating to the quickest for more than three years (index at 39.7). It was joined in contraction by the service sector, where business activity fell for the first time eight months and to the greatest extent since November 2022 (index at 47.3).
- August saw a further broad-based reduction in backlogs of work, reflecting a lack of incoming new orders to replace completed projects. Furthermore, the rate of depletion of total outstanding business quickened for the fifth month in a row to the fastest for more than three years.
- Work-in-hand at manufacturers fell particularly sharply, which in turn dampened their willingness to take on new staff and resulted in another slight decrease in factory workforce numbers. At the same time, service sector job creation virtually stalled, which meant that total employment was broadly unchanged on the month.
- Private sector firms in Germany remained pessimistic about the year-ahead outlook for activity in August.
Yet: German wages rise at record pace in second quarter – FT
China Moves to Stabilize Finances of Troubled Shadow Bank Defaults in trust sector raise financial stability concerns
China has asked two of the nation’s biggest financial firms to examine the books of Zhongrong International Trust Co., potentially paving the way for a state-led rescue of the troubled shadow lender, according to people familiar with the matter.
Citic Trust Co., a unit of conglomerate Citic Group Corp., and CCB Trust Co., backed by China Construction Bank Corp., will lead the effort to stabilize operations at Zhongrong, said the people, who asked not to be identified discussing a private matter. It couldn’t immediately be determined what might result from their involvement, though a similar examination by Citic of Huarong Asset Management Co. led to a $6.6 billion bailout of the bad-debt manager in 2021.
The plan underscores growing concern among policymakers about the $2.9 trillion trust sector’s impact on financial stability amid disappointing economic growth and a worsening property slump. (…)
The sector could face losses of the equivalent of $38 billion, according to a Goldman Sachs Group Inc. estimate. (…)
The trust sector has already seen several state rescues. In 2020, the government was involved in Shanghai-listed Anxin Trust Co.’s restructuring plan to avoid triggering “systemic financial risks.” The banking regulator also assumed control of New Times Trust Co. and New China Trust Co., along with seven other financial firms linked to Tomorrow Group.
Late that year, authorities took over Sichuan Trust Co. to maintain social and financial stability after the Chengdu-based company failed to pay at least 40 million yuan of products and hundreds of investors gathered at its headquarters to demand their money back.
New China Trust was declared bankrupt this year after three years of rescue efforts failed, becoming the first player in the industry to go under since the Trust Law was enacted in 2001.
Trust firms have billions of payments due to investors. Zhongrong alone has 270 products totaling 39.5 billion yuan due this year, according to data provider Use Trust.
Citic Trust had 1.5 trillion yuan of assets under management while CCB Trust oversaw about 1.4 trillion yuan.
Trying to keep Chinese trusting trusts, the government tells its largest trust companies to bail out the smaller private trusts. In Xi we trust!
Some Chinese state-owned banks will soon lower interest rates on existing mortgages, three sources familiar with the matter said on Tuesday, as Beijing ramps up efforts to revive the debt crisis-hit property sector and bolster a sputtering economy. (…)
The reduction could be as much as 20 basis points in some cases, said the sources, who declined to be named as they were not authorized to speak to the media. (…)
Zhu Qibing, chief macro analyst at BOC International China, estimates the weighted average rate of new mortgages is 4.11%, while the average rate on all existing mortgages is at least 100 basis points higher. (…)
To soften the hit on the margins, the three sources said that major state banks would also lower interest rates on some fixed-term deposits, and the quantum of cuts would range from 10 basis points to 25 basis points. (…)
