The latest JOLTS data (Job Openings and Labor Mobility Survey) shows some resilience in the labor market with job openings increasing. Matthew Ruzzetti, Chief U.S. Economist at Deutsche Bank, joins Market Domination to provide insight into the latest employment data and what it means for the labor, housing and stock markets going forward.
“If you look at the JOLTS data this morning, you said job openings increased, but actually the employment rate is up and the turnover rate is stabilizing at a somewhat lower level than it has been for the last six months. But when you put all of this together, it shows that the labor market, which has been soft for the last six months or so, is stabilizing at this point. We’re expecting to see an increase of 200,000 to 225,000 jobs on Friday. The unemployment rate is stabilizing at 4%, but actually there’s a risk that it could be cut to 3.9%,” Ruzzetti told Yahoo Finance.
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Video Transcript
The number of new job openings unexpectedly rose in May, beating economists’ expectations.
New data points to a stronger labor market ahead of Friday’s jobs report.
Joining us now is Matthew Rity, chief U.S. economist at Deutsche Bank.
It was nice to meet you.
Well, let’s hear Matt’s opinion.
I have everyone thinking about the big jobs report coming out on Friday morning.
That’s interesting, Matt, I don’t know if you saw Nick Tim Law’s latest comment, the journal.
Well, that was a good question and it was interesting how Nick framed it, which was: Is the labor market in a sustainable equilibrium where the unemployment rate is stable around 4%?
Well, we continue to soften and go into recession.
I’m funny.
Matt, what do you think about that question?
Well, any time we have a situation where the economy seems to be slowing, the question always arises about the trajectory, is it slowing in a more worrying direction, like stalling or going into recession, or is it returning to something much more normal from a very strong growth environment like last year?
I think it’s definitely the latter.
Well, if you look at the data from Jolts this morning, I think it said that job openings have increased.
In fact, adoption rates were increasing.
Attrition rates have remained stable at a moderately low level over the past six months.
But taken together, they suggest the labor market is stabilizing as of Friday after softening over the past six months or so.
Approximately 202,125,000 jobs are expected to be added.
Well, the unemployment rate is stable at 4%.
Um, but there’s actually a risk that it could be cut to 3.9%.
They see average hourly earnings, or wage growth, again holding steady at 0.4%.
And I think having that data point would ease some of the concerns that the labor market could cool too much.
wife.
My question is, we’ve seen some softening in the economic data recently, even discounting the GEL report that came out this morning.
However, weakness in home manufacturing also showed signs of being slightly weaker than expected earlier this week.
What does that say about your confidence?
Are you still confident that we can achieve a soft landing and avoid a recession?
Yeah, that’s still our standard.
As you say, we are seeing data speeds slow down.
Well, a lot of this has been expected for quite some time.
On the manufacturing side, as you know, the ISM manufacturing index was a little weaker than expected.
But actually, if you look at new orders relative to inventory, you can see that there should be good growth momentum in the manufacturing sector.
And that’s actually similar to the signal we got from this week’s PM I data.
I think the focus going forward will be on the consumer.
Clearly, there is a lot of interaction between consumers and the labor market.
But if we continue to have a labor market that produces meaningful income growth, as we actually saw in last week’s Personal Income Report, I just don’t understand why we would see a worrying slowdown in consumer spending when there is so much wealth and meaningful income growth for consumers.
Matt, when we talk about consumers, of course, you know, there are different consumers: high income, middle income, low income.
Have you read anything about what each one is up to and what the future holds?
Yes, definitely.
I think there is a lot of diversity in consumer experiences at the moment, which is partly driven by the dissaving of excesses, particularly in the bottom half of the income distribution.
Certainly, we can see some tension and stress appearing with rising delinquency rates.
Meanwhile, the top half of the income distribution – high-income households – are benefiting from sky-high home prices and stock prices near record levels.
The fact that you’re locked in to a low mortgage rate means that you’re not currently vulnerable to rising interest rates.
And, you know, the labor market, even though it’s slowing, is still performing well, so there’s clearly a discrepancy in the data that we’re seeing.
But the key thing is, from an aggregate or macro perspective — that’s what the Fed is primarily focused on at the moment — consumers appear to be slowing down to a more comfortable level at this point, rather than stalling or even recession.
So, given that and also the comments from Chairman Jay Powell earlier today, I’d love to get your perspective on what we know about the first rate cut, because he didn’t really articulate or give any hints about the timing of the cut.
But if you consider what he’s saying, or what he’s actually said, what emerges is the fact that the labor market is cooling, that he’s very encouraged by some of the developments that we’ve seen on inflation.
What does that mean?
tell me?
Any thoughts on the possibility of a rate cut in September?
Well, our general policy is to make one cut this year and then cut in December.
But, as you know, the expectation is that a September rate cut could come in one of two ways if inflation data improves over the coming months.
And as that clip showed, you know, Chairman Pal was at least encouraged by the last inflation release.
Indeed, if the coming months show results similar to last Friday’s core PC numbers, the Fed may well cut rates at its September meeting.
Another way that interest rates could be cut is if there is an unexpected weakening of the labor market.
Yes, that’s an area where there is downside risk as you know, but it’s not in our baseline right now.
Well, I did get a slightly dovish tone from Mr. Chou’s comments this morning, saying he was encouraged by the inflation data.
He certainly sees the labor market returning to a much better balance than before.
Well, it’s not a significant source of inflation at the moment.
So really, they’re going to be data-dependent — I mean, very good data on inflation over the next few months would certainly improve the outlook for a September rate cut.
Matt, as you know, the election is top of mind, so tariffs are top of mind.
Both Biden and Trump have accepted that.
Well, I’m just curious as an economist.
Matt, what do you think about that policy tool?
Do you think that’s clever?
Do you think it will be effective?
What are the potential economic impacts?
mat?
Well, I think that’s really important in terms of the economic impact.
Well, the scope and the size of these tariffs, you know, and President Biden has certainly embraced that to some extent, but they are very targeted on things like electric vehicle imports from China.
The Trump administration’s proposed tariffs are far more extensive and much more expensive.
Well, I think he’s looking at a 10% universal basic tariff — that’s a 10% tariff across the board, and he’s looking at a 50-60% tariff on imports from China, which will have meaningful macro implications.
So, you know, especially when we think about the Federal Reserve from next December through next year, the outcome of the election is going to be important to how much they cut interest rates.
And then there will be election results promising fiscal stimulus through tax cuts and inflationary policies through tariffs.
The Fed is unlikely to cut interest rates anytime soon next year.
Matt, thank you so much for being here today.
Thank you for helping us get the show started.
appreciate.
Thank you for inviting me.
