We had some July jobs data this morning. We'll see July core PCE on Thursday, the Fed's favored inflation gauge. And then on Friday we get the August jobs report.
Remember, the Fed told us the data will determine whether or not they've finished the job on inflation. And this line-up of data should go a long way toward determining that objective.
This morning's jobs data might be the most important.
Remember, from the very beginning of the tightening campaign, Powell has targeted jobs. More specifically, he targeted the mismatch between the number of job openings and the number of job seekers.
That ratio was over 2, when this tightening cycle started (2 openings for every 1 job seeker). With that leverage for employees, people were quitting jobs at the highest rate on record.
It's job switching that drives the highest wage growth. And the Fed was concerned an upward spiral in wages would fuel a self-reinforcing cycle of higher prices.
This morning's report on job openings showed the openings-to-seekers ratio fell to 1.4. That's the lowest in almost two years. In March of last year, there were 12 million job openings. Today there are 8.8 million. And the quit rate is now back to pre-pandemic levels.
Yields fell 15 basis points on the number this morning. Stocks had a big day. Commodities perked up.
Why did markets respond so positively to the evaporation of three million job openings over the past seventeen months?
Destroying three million job openings was wringing out excessive exuberance in the economy. Undoubtedly some (if not many) of those job openings weren't real jobs, but were creating leverage for employees to command higher wages from employers. In the Fed's view, this morning's number is success.