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One of the dumbest things about this moment in American capitalism is the way the Fed must inflict pain when things are, on the whole, pretty good. We the people can create the strongest job market in a generation and what do we get in return? Higher borrowing costs and a potential recession.
Here’s the deal: The labor market is still very, very strong. And while that’s great news for workers, it’s bad news for the Fed.
Today, as the central bank gathered for the start of its two-day policy meeting, economists got yet another data surprise showing the labor market is just not letting up.
Economists had expected the number of job vacancies in the US to decrease in the closely watched September JOLTS report, given how aggressively the central bank is raising interest rates. Instead, the number of available jobs in the United States increased in September. Meaning workers remain in high demand.
(JOLTS, by the way, is the much cooler-sounding acronym we use for the rather dully named “Job Openings and Labor Turnover Survey.”)
Key stats:
- There were 10.7 million open positions in September, up from 10.3 million in August.
- That’s still much higher than the pre-Covid level of 7 million openings.
- There were roughly 1.9 open positions for every person looking for work in September — up from 1.7 in August.
- The “quit rate” held steady at 2.7%, or about 4.1 million workers voluntarily leaving their jobs — not a record, but still historically high.
- In summary: “If you were waiting for signs of labor inflation easing, you’ll have to keep waiting,” said Lightcast senior economist Ron Hetrick.
Why it matters: The mismatch in supply and demand for workers creates upward pressure on wages, and therefore inflation. People feel empowered to demand higher pay when they know managers are struggling to hire and retain staff. And higher pay = more spending money = more demand = higher prices.
To the Fed’s credit, that wage price spiral is a real and scary risk that it desperately wants to avoid. That doesn’t mean folks aren’t allowed to be angry about it. Democrats, especially, are sounding off, calling the Fed’s plan “foolish” and warning that Powell is going to be responsible for millions of layoffs if he doesn’t cool it with the rate hikes. The UN is also unhappy, saying the Fed’s policies risk inflicting more damage globally than the financial crisis in 2008 and the Covid-19 shock in 2020.
To which the Fed is more or less saying, look, we hear you, but we don’t have much choice here. Either we bring inflation down now and deal with “some pain” (read: layoffs, possible recession, wage depreciation), or bring inflation down later and deal with a lot of pain (all of the bad stuff, but worse).
BIG PICTURE
The economy has been super weird (to use a technical term) since the pandemic, and things just keep getting more and more wacky.
On one hand, the housing market is cooling and consumer spending — the biggest driver of US economic growth — is slowing. But the labor market has barely budged.
Americans can feel good because their job prospects are strong and their wages are rising. But inflation is mucking all that up. And while the Fed is trying its darndest to bring it down, it takes months for the impact of interest rates hikes to be felt.
Look ahead: The consensus right now is that the Fed will unleash yet another 0.75% rate hike Wednesday, and that it won’t relent from that aggressive pace for quite a while longer.
But all eyes will be on the Silver Fox, Jay Powell, when he steps up to the lectern tomorrow. The 75 basis-point hike is pretty much guaranteed, but Wall Street (and journalists) will be parsing every syllable from the central bank chief’s mouth for clues about how long the tightening policy will last.
(Idea for a Fed press conference drinking game: Take a swig every time Powell says “mandate,” or “price stability.” Finish your drink if he dares say the words “pivot” or “transitory.”)
NUMBER OF THE DAY: 10
Look what we made her do … Taylor Swift notched all top 10 slots on the Billboard Hot 100 simultaneously. That’s never happened before.
(And it’s even more surprising because honestly her new album, “Midnights,” doesn’t hold a candle to “1989.” And I will die on that hill.)
HOW WE WORK
Carrying on with our labor theme this evening…
Managers have done all kinds of things to try to attract and retain talent. Signing bonuses, extra vacation days, flexible hours. None of those are so crazy, but they are unfortunately rare outside of white-collar jobs.
One popular option: A shorter workweek.
One Miami Chick-fil-A owner has been deluged with applications after switching his staff to a three-day workweek.
He divided his staff of 38 — 18 store leaders and 20 frontline employees — into two groups and alternated weekly schedules into three-day blocks of 13- to 14- hour shifts. (The chain is closed on Sundays.)
The result: 100% retention at the management level and a flood of applications, my colleague Parija Kavilanz reports. An opening this fall drew more than 420 candidates.
Bottom line: Not to sound like a broken record but: People across the workforce are burned out. The pandemic exploded the standard five-day, 40-hour model that’s shaped our existence for generations.
But with workers in high demand, it is on hiring managers to figure out a better way.
“I think people want to work in this industry,” Justin Lindsey, the Chick-fil-A owner, told QSR magazine. “But they want some things to change, and I think that’s what this has shown — is that there are things that if we change it for the better, we’re going to make a lasting impact.”
