Strong JOLTS Data Seems to Shock the Market

The Fed’s job is not getting any easier. We see resilience in services, which is in turn creating additional upward price pressure.

The last ISM PMI Flash survey of the US services industry showed that price hikes were being passed through to customers due to rising wages pressuring margins.

The same survey showed that the services industry, which is three quarters of the US business economy, grew at a healthy clip during May.

Job Openings and Hires

Today’s JOLTS data showed that the number of job openings edged up to 10.1 million, an increase of 358,000 from the previous month. The job openings rate was little changed at 6.1 percent.

Job openings increased in retail trade (+209,000); health care and social assistance (+185,000); and transportation, warehousing, and utilities (+154,000).

Quite interesting to see retail getting such a large boost. Something we’ll be keeping an eye on as there’s plenty of data that shows a weakening rather than strengthening US consumer.

Health care and social assistance makes more sense given that we have a progressively aging population and a lot of health needs being addressed after many skipped care and treatment during COVID.

Transportation, warehousing, and utilities saw impressive opening rates as well, which further underscores the concern that some elements of inflation may remain sticky.

The number of hires was little changed at 6.1 million, and the rate held at 3.9 percent. Hires decreased in information (-37,000).

Total Separations

Total separations, which include quits, layoffs and discharges, and other separations, decreased to 5.7 million (-286,000) in April, and the rate was little changed at 3.7 percent.

The number of quits changed little at 3.8 million and 2.4 percent, respectively. The number of quits increased in wholesale trade (+29,000) but decreased in state and local government, excluding education (-18,000).

The number and rate of layoffs and discharges decreased to 1.6 million (-264,000) and 1.0 percent, respectively. Layoffs and discharges decreased in construction (-113,000) and in information (-33,000). This data point, along with the large increase in job openings, are both showing that despite a slowing economy, the labor market remains resilient.

The number of other separations was little changed in April at 333,000.

Other separations increased in health care and social assistance (+24,000), state and local government, excluding education (+10,000), and mining and logging (+2,000). Other separations decreased in accommodation and food services (-18,000) and in arts, entertainment, and recreation (-3,000).

Business Establishment Size

In terms of establishment size, establishments with 1 to 9 employees saw an increase in their job openings rate and a decrease in their layoffs and discharges rate.

Establishments with more than 5,000 employees saw an increase in both their job openings and hires rates.

Closing Thoughts

This strong JOLTS data release indicates a robust labor market, which could potentially create more trouble for the Federal Reserve in its fight against inflation.

The probability of a rate hike has increased to about 72.23% from 66.55% yesterday for June 14th’s FOMC meeting. The Fed’s policy mantra of, “higher for longer,” is certainly validated by the surprisingly strong JOLTS data today, but we also have non-farm payrolls on Friday to digest which may also come in stronger than expected.

I think we may have at least one or two more rate hikes, but if services inflation and the labor market remain resilient we may see the Fed have to continue to tighten policy. After all, they have historically low unemployment and historically high inflation to contend with, and the former gives them cover to fight the latter more aggressively should they need to do so.