No matter the size of its rate rise decision this morning – 0.75% is the consensus – the Fed will have to do a lot more along similar lines if it is to bash inflation to lower levels by slowing jobs and wages growth – especially jobs.
It simply isn’t happening yet and while monetary policy operates with a delayed impact, the huge and repeated rises of 0.7% from the Fed should be working a lot faster on US jobs and job vacancies than it is.
There’s a striking similarity between the US labour market and with what is happening in Australia which is showing a strong residence to the impact of the fastest rise in interest rates in history from the RBA.
With the US October jobless data out on Friday night, economists are expecting around 200,000 new jobs to have been created, down from 263,000 in August. The jobless rate will be around 3.5% perhaps 3.7% depending on the number people confident enough to be looking for work.
On other words, while not as high as earlier this year when over 500,000 new jobs on average were being created each month at one stage, but strong enough to say the US labour market is standing up to the belting from the Fed’s rate rises.
One area where you’d expect some sort of impact is in job vacancies and there were signs in August the Fed’s rate rises were causing damage with a drop of around 1 million
Expectations were for another fall in September but nothing of the sort happened when the JOLTS (Job Openings and Labor Turnover survey) data was issued on November 1,
Instead, there was a jump of 437,000 to 10.7 million in the September figures. That was after the August fall to the still near record high of 10.3 million.
The US Bureau of Labor Studies (BLS) data on Tuesday showed the rise came from big employing sectors – especially low-cost labour who are usually the first to find their jobs cut.
“In September, the largest increases in job openings were in accommodation and food services (+215,000); health care and social assistance (+115,000); and transportation, warehousing, and utilities (+111,000). The number of job openings decreased in wholesale trade (-104,000) and in finance and insurance (-83,000).”
In other words, the new job openings came in sectors sensitive to the impact rate rises and inflation should be having on activity and consumer demand – but they aren’t or if they are, they are muted and being offset by high levels of consumer activity.
The 10.7 million openings are still much higher than the pre-Covid level of 7 million openings and there were roughly 1.9 open positions for every person looking for work in September — up from 1.7 in August. The 1.9 to one ratio is roughly what it is in Australia at the moment.
US economists pointed out that if you were waiting for the labour market to show the sort of easing impact from the Fed’s rate rises, then keep waiting. Demand for labour from business remains very, very strong.
And it should be remembered the tight labour market isn’t seeing a wages prices spiral emerge. US average hour wages rose 5% in the year to September. It was 5.5% in April, 5.6% in March and 5.4% in October, 2021.
But like Australia, with US inflation running at 8.3% a year in September, hourly workers are seeing nasty falls in real wages.
That plus shrinking savings could end up reacting more to the negative side of rate rises and crashing the jobs market.
Australian hourly wages are also falling in real terms.
The parallels with the US labour market and monetary policy stance continue to be similar, though the RBA’s last two rises have been a fraction of the Fed’s 1.50% and inflation here is yet to peak, as it did in the US in June at 9.1%.
