Maybe We’ll Get That Soft Landing After All, Stock Market Suggests

Two reports seem to show a cooling economy, with the Fed backing off.

The bad-news-is-good-news phenomenon appeared again Tuesday, as U.S. job openings dropped below nine million for the first time since early 2021 and consumer confidence reversed its summer advance.

To be sure, the reports were not necessarily bad per se—more like a brake tap than a screeching halt. Still, an economy with a decreased tempo sounded good to Wall Street, as it might convince Federal Reserve officials to halt their rate-increase campaign. The S&P 500 jumped 1.45% for the day, on hopes that the economy will avoid a recession and that the Fed need not tighten any more. In other words, a soft landing.

The jobs news “was an answer to Fed prayers,” commented Ronald Temple, chief market strategist at Lazard. “At the same time, low, stable layoff rates imply rising odds of a soft landing in the absence of wide-scale workforce reductions.”

The report, from the U.S. Labor Department, showed signs of cooling in the nation’s buoyant employment market. The labor market still is tight, with 1.51 job openings for every unemployed person in August, down slightly from 1.54 in June, according to the Job Openings and Labor Turnover Survey.  But the JOLTS report also found that job openings had slid by 38,000 to 8.83 million in July. Economists in a Reuters survey had predicted 9.46 million job openings.

Meanwhile, after rising in June and July, the Conference Board’s Consumer Confidence Index erased those gains in August. The research group’s chief economist, Dana Peterson, indicated in a news release that the pullback seemed mostly linked to still-high levels of groceries and gasoline.

The slower employment situation should calm Fed fears that burgeoning wages will keep inflation high, per Bill Adams, chief economist for Comerica Bank. In his view, “The Fed is concerned that rapid wage growth might stoke inflationary pressures in 2024, but wage growth is likely to slow in coming months with workers seeing fewer opportunities to raise wages by switching jobs.”

The odds are strong  that the Fed will stand pat at its September 20 policymaking meeting, by the reckoning of the CME Group futures market: 86.5% believe that the central bank’s benchmark rate will stay in its current (5.25% to 5.5%) range.

The odds also continue to favor no change for the balance of the year, CME traders indicate. “The Fed reiterated its commitment to be data-dependent and with reports like this, the Fed can most likely keep rates unchanged in September,” Jeffrey Roach, chief economist for LPL Financial, noted in a statement.

The jobs and confidence reports are the opening act for a week full of important economic reports—the Fed’s favorite inflation gauge, the Personal Consumption Index, and the August payrolls data. Expectations are that both will dip, and that a happy stock market will keep rising if they do.

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