Following a brief acceleration in the first quarter of the year, the labor market appears to have resumed its softening trend. The Job Openings and Labor Turnover Survey (JOLTS) released yesterday by the Bureau of Labor Statistics reported that job openings across the economy fell by 300,000 to 8.06 million. While that is the lowest level in over three years, it is still higher than at any point prior to the last three years. The decline in job openings was generally broad-based across the economy, with healthcare, manufacturing, and government posting the largest declines.
A related indicator that is closely watched by the Federal Reserve, the ratio of job openings per unemployed worker, also fell to the lowest in nearly three years. However, at a level of 1.2, it remains higher than what would be consistent with a balanced job market.
Source: Bloomberg, Bureau of Labor Statistics, as of 6/4/2024
Additional evidence of softening came today from the Automatic Data Processing (ADP) report, which covers more than 25 million US private-sector employees. The report indicated that private payrolls rose by just 152,000 in May, lower than expected and weakest since the start of the year. Weakness was concentrated in factory payrolls, where 20,000 jobs were lost during the month.
The ADP report offers a preview of the more widely awaited nonfarm payrolls data to be released on Friday. As the chart below shows, while the two series don’t necessarily always track each other perfectly, they tend to move in the same direction, with most of the discrepancies explained by government jobs being included in nonfarm payrolls. The current expectation for Friday is for the economy to have added 185,000 new jobs in May. Today’s ADP report suggests the risk is to the downside.
ADP Employment Change & Nonfarm Payrolls
(Monthly Change, Thousands)
Source: Bloomberg, Bureau of Labor Statistics, Automatic Data Processing, as of 6/5/2024
The data is painting a picture of a job market that is cooling, though gradually through slower hiring rather than outright job cuts. If this trend continues, it will go a long way towards pushing inflation lower. That would be a welcomed development for the Federal Reserve, which is hoping to be able to cut interest rates soon, before too much damage is inflicted upon the economy. If such soft-landing scenario comes to fruition, we expect financial assets to perform well, with stocks most likely outperforming bonds.
Sauro Locatelli CFA, FRM™, SCR™
Director of Quantitative Research
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