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While the headline numbers from JOLTS (naturally) grabbed all the headlines, Ross MKM says investors should look at retirement rates as a more accurate gauge of the economy.
Job openings fell below 9 million for the first time since March In 2021, Animal spirits in danger On Tuesday, the percentage of people leaving voluntarily fell to 2.3%.
Chief economist and strategist Michael Darda said the job-cutting rate is now approaching levels seen at peaks in past business cycles.
“The unemployment rate tends to be a predictor of labor market pressures and leads wage and salary growth,” Darda wrote in the note. “It also correlates very closely with the real risk-free rate, an indicator that tends to mimic short-term neutral interest rates (which rise during economic expansions and fall during economic slowdowns or contractions).”
“The current level of retirement rates suggests that the upward pressure on risk-free real interest rates has ended.”
Pantheon Macro's Ian Shepherdson says the Fed should keep an eye on retirement rates.
“Although the data is widely known to be flawed, Powell's continued fixation on job numbers is puzzling,” Shepherdson wrote. “Advertising is cheap and easy, allowing companies to advertise speculatively. They want to hire top talent but aren't necessarily actively looking for them.”
“Job postings recorded in the official JOLTS data are supposed to be available within 30 days, and companies should be actively hiring for the positions. But no one is checking.”
“But at least Chairman Powell is no longer pointing to a high job-to-unemployment ratio as a sign of explosive wage growth,” he added. “That indicator has vastly exaggerated upward pressures on wages over the past two years.”
“While the job separation rate is a much better indicator of future wage growth than the job-to-unemployment ratio, it does point clearly to a sharp slowdown in wage growth, consistent with a range of other indicators,” Shepherdson said. “The job separation rate is several quarters ahead, and its decline to 2.3% just before COVID suggests wage growth will be around 3.5% next winter.”
All of this suggests that further rate hikes would be overkill, and monetary tightening is still needed to have a sufficient impact on the labor market, he added.
A look at third quarter GDP
Darda said another signal of the business cycle peak could be a surge in GDP this quarter.
“Some estimates that track GDP have RGDP approaching 6%, which could signal relatively robust (above trend) nominal growth in the third quarter,” he said. “However, nominal GDP growth has tended to be positive in the past around business cycle peaks.”
“That is, one quarter before every recession since 1947, nominal GDP growth averaged 6.5%. Nominal GDP growth slowed into the third quarter, with the most recent AR at 4.7%, very close to the pre-COVID trend of 4% per year (associated with less than 2% inflation) during the last cycle.”
Regarding stocks, he said stocks remain expensive compared to the bond market, especially the S&P 500 (SP500).NYSEARCA:Spy) (IVV) (VOO) Equity risk premium is negative.
“This is especially true for highly valued sectors that make up a large portion of the market cap of the S&P 500 (Information Technology) (XLK),” he said.
“How long will this continue? As we've seen this year, momentum-driven markets can be overwhelming. We can't time the resolution, but we do know that in the past, periods of negative cash-based ERP have heralded corrections and bear markets. Until that happens, this time will look different.”
