According to a Bloomberg opinion article, the Federal Reserve’s fixation with the job openings data from the Job Openings and Labor Turnover Survey (JOLTS) is finally over. The article argues that the Fed’s obsession with the record-high job openings and their implications for inflation was misguided and fleeting. The article cites the latest JOLTS report, which showed that job openings fell to about 8.83 million in July, the lowest since early 2021 and the sixth decline in seven months. The article claims that the job openings data is no longer signaling labor market overheating, if it ever was.
The article points out that the job openings rate, which measures the number of available jobs relative to employment, has returned to its subtly upward-sloping pre-pandemic trend. The article also notes that other indicators of labor market conditions, such as consumer confidence and quits rate, have cooled down or reverted to their pre-pandemic levels. The article suggests that the labor market is on an almost ideal trajectory given the circumstances: cooling but without entering a deep freeze.
Inflation fears have subsided
The article also contends that inflation fears have subsided since last year, when the Fed and investors were worried about the possible role of the labor market in driving up prices. The article asserts that most evidence suggests that the labor market was never at the heart of the problem anyway. The article cites new research from the Federal Reserve Bank of San Francisco, which showed that labor-cost growth has had a small effect on inflation, both overall and in the nonhousing services category, where labor is a big proportion of company costs. The analysis found that recent increases in the employment cost index explained about 0.1 percentage point of the 3 percentage point increase in core personal consumption expenditures inflation.
The article concludes that this should help Powell get over any apparent fixation he may have had with the job openings data. The article implies that the Fed should focus on other factors, such as supply chain disruptions and consumer demand, in assessing the inflation outlook and deciding on its monetary policy stance.
JOLTS report has gained prominence
The article also provides some background on how the JOLTS report has gained prominence in recent years. The article shows a graphic that illustrates how mentions of job openings in Fed speeches, press conferences, minutes and the Beige Book skyrocketed around mid-2021. The article mentions that Powell has referenced the job openings data at many of his recent press conferences, as a way of explaining the mismatch between labor supply and demand. The article implies that this was a mistake, as the job openings data was not a reliable indicator of labor market tightness or inflationary pressures.
The article contrasts the current situation with last year, when it was easy to understand why policymakers and investors would have received the job openings data with a sense of foreboding. The article states that those were different times, when inflation was still accelerating and no one could say for sure what role the labor market was playing. The article suggests that today, inflation has roughly been contained (though clearly not vanquished), and the labor market is no longer a cause for alarm.