Last Week’s Mixed Labor Market Reports Have Fed Policymakers Hoping for Clarity

This week, U.S. consumer inflation will move to the forefront after labor market data dominated the news last week. With U.S. financial market traders already making adjustments to their outlook for the pace of future Fed rate hikes due to an unexpected rise in the unemployment rate, investors are already bracing for Thursday’s consumer price index (CPI) report that could have an even greater impact on the size of future rate hikes.

Traders are hoping for clarity from the inflation data because the employment situation is still a little muddled with some reports showing enough strength in the U.S. labor market to warrant a more aggressive attack from the Fed, and other components suggesting the Fed should slow down.

Jump in US Job Openings May Jolt Fed Yet Again

Last Tuesday, the financial markets were hit hard by the news of a jump in U.S. monthly job openings (JOLTs) that threw the Federal Reserve another perplexing piece of data ahead of its policy meeting last Wednesday. The news provided more evidence that rapid interest rate increases have yet to bite hard in the real economy.

New data released by the Bureau of Labor Statistics showed firms had 10.7 million job openings at the end of September, a jump of about half a million from August in a number the Fed expects to see move lower as demand in the economy slows.

Yields on U.S. Treasury bonds rose after the release of the data, as did bets that the Fed may raise its target policy rate higher than anticipated.

US Weekly Jobless Claims Fall…

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting the labor market remains strong despite slow domestic demand amid stiff interest rate hikes from the Federal Reserve to tame inflation.

But Layoffs Uptick

Though unemployment rolls remain small, there has been an uptick in layoffs. A separate report from global outplacement firm Challenger, Gray & Christmas on Thursday showed job cuts announced by U.S.-based employers increased 13% to 33,843 in October, the highest since February 2021.

Unemployment Rate Rises More than Expected

On Friday, an uptick in the U.S. unemployment rate in October raised optimism the Federal Reserve would be less aggressive on rate hikes going forward.

U.S. employers hired more workers than expected in October, but a rise in the unemployment rate to 3.7% suggested some loosening in labor market conditions.

Mixed Labor Market Data Suggests It’s Still Too Early to Greenlight Rate Hike Slowdown

If the Fed is planning on slowing the pace of rate hikes, it is going to have to be able to make a compelling case that slowing demand will take pressure off labor costs, ultimately slowing inflation. After last week’s labor market reports, it still looks like it may be difficult to make that case.