Early signs that the Fed’s plan might be working: Morning Brief

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Friday, April 22, 2022

Today’s newsletter is by Sam Ro, the author of TKer.co. Follow him on Twitter at @SamRo.

This week came with the World Bank and IMF cutting their outlooks for global economic growth.

Meanwhile, Goldman Sachs made waves when its chief economist concluded there’s a roughly 35{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} chance the U.S. economy will go into recession within two years.

It’s worth stressing that the World Bank and IMF still expect growth, and Goldman Sachs’ forecast implies that the U.S. economy will more likely avoid a recession.

Nevertheless, it’s always good to be vigilant about recessionary risks. And few are being more vigilant right now than the Federal Reserve, which is currently engineering monetary policy in a way aimed at cooling the economy to a level that brings inflation down from decades-high levels.

Whether the Fed’s plan can help the economy avoid recession will become clear in hindsight.

But there’s a way to track Fed’s progress: Job openings and unemployment.

After the March Federal Open Market Committee meeting, Fed Chair Jerome Powell said the labor market was “tight to an unhealthy level.” Specifically, he noted that at the time there were 1.7 job openings for every unemployed person. He argued that this extraordinary demand for labor has fueled significant wage inflation, which in turn has helped spur inflation across the economy.

Powell seems to believe that with the right amount of tighter monetary policy, the level of job openings can come down, relieving wage pressure, without causing unemployment to rise. Assuming unemployment is contained, then the risk of recession should be limited.

Signs that job openings are down, while unemployment remains unchanged

As of February, there were 11.27 million job openings. That’s about in line with the 11.28 million openings in January. Unfortunately, the Bureau of Labor Statistics’ job openings data comes on a significant lag with the March numbers being released on May 3.

However, job listings site Indeed regularly publishes more current job openings stats based off of its own data. And while job openings remain considerably above pre-pandemic levels, they have been coming down in the weeks going into April 15.

Meanwhile, the unemployment rate continues to be depressed, sitting at 3.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} as of March compared to compared to 14.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} at the onset of the pandemic. Again, the BLS’s official data comes on a bit of a lag — the April employment report comes on May 6.

The Department of Labor, however, provides weekly updates on initial claims for unemployment benefits. While not as comprehensive as the BLS’s monthly jobs report, initial claims do provide some indication as to what’s going on in terms of job cuts.

In the week ending April 16, there were 184,000 initial claims filed. This is down from the prior week’s tally of 186,000. This was the ninth straight week this reading was depressed below the 200,000 level.

It’s still early days in the Fed’s tightening effort. But so far, we’re getting early indications that job openings can indeed decline without forcing unemployment significantly higher.

If this trend is confirmed and it continues, then the Fed thinks we should begin to see wage growth slow down, which in turn should cause broad inflation reading to cool. We shall see.

What to watch today


  • 9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, April preliminary (58.0 expected, 58.8 in March)

  • 9:45 a.m. ET: S&P Global U.S. Services PMI, April preliminary (58.0 expected, 58.0 in March)

  • 9:45 a.m. ET: S&P Global U.S. Composite PMI, April preliminary (57.9 in March)



  • 7:00 a.m. ET: Verizon (VZ) is expected to report adjusted earnings of $1.35 per share on revenue of $33.59 billion

  • 7:00 a.m. ET: American Express (AXP) is expected to report adjusted earnings of $2.39 per share on revenue of $11.63 billion

  • 7:30 a.m. ET: Schlumberger (SLB) is expected to report adjusted earnings of $0.33 per share on revenue of $5.94 billion

  • 7:30 a.m. ET: Kimberly-Clark (KMB) is expected to report adjusted earnings of $1.24 per share on revenue of $4.91 billion



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Minnie Arwood

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