In combination with job openings falling, continued progress on job gains, particularly in the sectors with the greatest demand, is a welcome signal for investors that a more balanced labor market could put a lid on inflationary pressures and the Federal Reserve’s hawkish trajectory.
Stephanie Aliaga
Research Analyst
Stephanie Aliaga:.:
Hello, my name is Stephanie Aliaga, Research Analyst for JP Morgan Asset Management, and welcome to On the Minds of Investors.
Today's blog answers the question, after robust job gains is the labor market coming into balance? The September job support show the economy continues to make progress in easing labor market tightness. The recent pace of job growth remains solid, but is moderated and wage growth continues to run at a more modest pace of 0.3% month over month. In combination with job openings falling, continued progress on job gains, particularly in those sectors with the greatest demand is a welcome signal for investors that a more balanced labor market could put a lid on inflationary pressures and the Fed's hawkish trajectory. Among the report highlights, we saw non-farm payrolls rise by 263,000. Slightly above consensus expectations, but still at the slowest pace since April 2021, private sector job gains were broad base with the greatest strength in leisure and hospitality and in healthcare, and excluding the dip in government jobs, private payrolls rose by robust 288,000.
The pace of job gains has also moderated averaging only 360,000 over the last six months after averaging 588,000 in the prior six months, the unemployment rate felled at 3.5% from 3.7%, reflecting a modest dip in both unemployment and in labor force participation. And average hourly earnings rose by 0.3% month over month and 5% from a year ago, down from its peak of 5.6% in March.
We don't expect the Fed to change its trajectory following this report, and we continue to expect them to hike rates by 75 basis points in November, followed by a further 50 basis points in December. However, in the coming months, it may begin to acknowledge that the traditional relationships between economic growth, job openings, payroll job growth, unemployment and wage gains have become distorted in the post pandemic economy. JOLTS job openings peaked in April, and we found that in the five recessions that preceded the pandemic, the peak in job openings preceded rise unemployment by about 12 to 14 months. However, today we still have a historically high 1.7 job vacancies per unemployed worker, so the lag could be longer this time around.
In the meantime, the economy may well see many more months of solid job gains to cure this backlog of vacancies, which would push an eventual rise unemployment out to late 2023 or even 2024, and allow wage growth to ease in the meantime.
The September Jobs report showed the economy continues to make progress in easing labor market tightness. The recent pace of job growth remains solid but has moderated, and wage growth continues to run at a more modest pace of 0.3% month-over-month. In combination with job openings falling, continued progress on job gains, particularly in the sectors with the greatest demand, is a welcome signal for investors that a more balanced labor market could put a lid on inflationary pressures and the Federal Reserve’s hawkish trajectory.
Among the report highlights:
- Nonfarm payrolls rose by 263,000, slightly above consensus expectations, but still at the slowest pace since April 2021. Private sector job gains were broad-based with the greatest strength in leisure and hospitality and healthcare. Excluding the dip in government jobs, private payrolls rose by a robust 288,000.
- The pace of job gains over the last six months has averaged 360,000, down from 588,000 in the prior six months.
- The unemployment rate fell to 3.5% from 3.7%, reflecting a modest dip in both unemployment and labor force participation.
- Average hourly earnings rose 0.3% month-over-month and 5.0% year-over-year after peaking at 5.6% year-over-year in March.
We don’t expect the Federal Reserve (Fed) to change its trajectory following this report and continue to expect the Fed to hike rates by 0.75% in November followed by a further 0.50% in December. However, in coming months, it may begin to acknowledge that the traditional relationships between economic growth, job openings, payroll job growth, the unemployment rate and wage gains have become distorted in this post-pandemic economy. Job Openings and Labor Turnover Survey (JOLTS) job openings peaked in April and, in the five recessions that preceded the pandemic, we estimate that the peak in job openings preceded a rise in unemployment by 12-14 months on average. However, with a still historically high 1.7 job vacancies per unemployed worker, this lag could be longer this time around. In the meantime, the economy may well see many more months of solid job gains to cure the backlog of vacancies, pushing an eventual rise in unemployment out to late 2023 or 2024 but allowing wage growth to ease in the meantime.
A peak in job openings tends to precede a rise in unemployment by 12-14 months
JOLTS job openings* in thousands, unemployment rate, SA
Source: U.S. Department of Labor, J.P. Morgan Asset Management. *JOLTS job openings from April 1978 to November 2000 are J.P. Morgan Asset Management estimates. Data are as of October 7, 2022.
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