Preview of today's US JOLTS report

Today we get the release of the February Job Opening and Labour Turnover Survey (JOLTS) from the US. The forecast is for the report to show the number of job openings fell to 10.35mn in February, a reduction of circa 500k and which, if delivered, will be the second consecutive month openings have fallen by around this amount, very much reversing the unexpected circa 500k increase seen in December. But despite today's expected fall, a figure in line with expectations will still mean that US corporates are looking to increase labour forces by around 8% of their existing headcounts, as well as implying that for every unemployed person in the US there are approximately 1.75 job openings. In essence, the report will suggest the US labour market remains tight.

We know the JOLTS survey is a piece of data highly regarded by the Fed, given that Chairman Powell has referred to it on a number of occasions when justifying the Fed’s aggressive policy tightening. But despite the importance placed on it, today's report probably needs to be read with a large pinch of salt.

The JOLTS report is very much at odds with the BLS monthly payrolls report, which has shown payrolls growth slowing to around 300k per month since last summer, a marked reduction from the approximate 550k monthly figure that was being seen in 2021. It is also being contradicted by other survey data, such as the regional Fed and ISM surveys, which are increasingly showing a slowdown in hiring intentions. A possible reason for this discrepancy may be that, in the age of digital media, it is relatively cheap and easy for companies to make multiple postings for single positions, and the JOLTS report may be capturing all of these different postings and over-estimating the number of actual vacancies. But whatever the reason, if demand for labour was that high, you would expect to see wages growth strengthening instead of the softening that is currently being reported. The February payrolls report showed hourly earnings rising by only 0.2%, meaning an annualised growth rate of just 3.6%, and which puts wages growth roughly back on a level consistent with the Fed’s inflation target.

In summary, therefore, today’s number is forecast to suggest that the US labour market remains tight, an outcome that will play into the hands of the ‘hawks’ on the FOMC when arguing that the current aggressive stance needs to be maintained. But the suggestion is that the real picture is somewhat different, that the US labour market is not as tight as the JOLTS report is indicating and is in fact already showing signs of weakening. Going forward, it adds weight to the argument that the monetary tightening already delivered is probably now sufficient and that the FOMC should instead be looking to bring the current tightening cycle to a pause.