Fed Gets New Path to Go Big as Job Openings, Confidence Surprise...

US jobs openings and a consumer confidence gauge both topped forecasts, pointing to strength in household and labor demand that risks sustaining inflationary pressures and raises the prospects for a third straight 75 basis-point interest-rate hike by the Federal Reserve.

The Conference Board’s August index of sentiment rose to a three-month high, and the report also showed firmer buying plans for appliances and cars. Job vacancies, meanwhile, unexpectedly increased to 11.2 million in July, close to a record and underscoring persistent tightness in the labor market.

One job-market indicator scrutinized by Fed Chair Jerome Powell -- the number of jobs available per unemployed person in the country - rose to about 2 in July.

Combined, the figures show rock-solid labor demand and resilient household demand even as US central bankers step harder on the monetary policy brakes. Without a commensurate slowdown in consumer spending and an easing of wage pressure, the Fed’s fight to bring inflation down from decades-high levels will be that much more difficult.

“The Fed’s efforts to temper demand for labor still have a long way to go,” Wells Fargo & Co. economists Sarah House and Michael Pugliese said in a note. “The ratio of job openings per unemployed worker rebounded back up to 2.0 in another sign that the stark imbalances between the supply and demand for workers have yet to ease, let alone resolve.”

Powell said in a speech Friday at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming, that bringing price pressures down toward the Fed’s 2% target was the central bank’s “overarching focus right now.”

Fed officials lifted rates by 75 basis points at each of their last two meetings and Powell has said that another unusually large increase of this size could be on the table when they next meet Sept. 20-21. Policymakers have said the decision will be determined by economic data, including the monthly jobs report due Friday and another update on consumer prices that will be released in two weeks.

The surprise strength in Tuesday’s indicators suggests that labor demand isn’t likely to abate soon, in spite of the rising interest rates. The consumer confidence gauge showed that Americans are growing more optimistic about the economy amid falling gasoline prices -- even as the costs of other essential items including food continue to rise at a quick pace.

“That lends itself to the narrative that if consumers are more confident, they’ll keep on spending, and maybe that means inflationary pressures that will keep the Fed on their tightening path,” said Derek Holt, an economist at Scotiabank who expects the Fed to raise rates by 75 basis points in September.

Following hawkish comments from Powell and other policy makers in Jackson Hole, investors are leaning toward a 75-basis-point hike, according to prices of futures contracts linked to the US central bank’s benchmark rate.

US REACT: Confidence in Labor Outlook to Stiffen Fed Resolve

On the job-market front, vacancies have exceeded 11 million for eight-straight months and the unemployment rate remains historically low.

Some of the largest increases in vacancies were in retail trade, and transportation, warehousing, and utilities. Arts, entertainment, and recreation also posted more openings from the prior month, and so did the federal government and state and local government education.

What Bloomberg Economics Says...

“Demand for labor shows no sign of cooling despite the Fed’s efforts to slow it down. Job openings failed to decline in July and the ratio of job openings per unemployed -- one of the Fed’s preferred measures of labor-market tightness -- remained near a record high. That suggests the central bank needs to keep on an aggressive rate-hike course, tipping the scale toward a 75-basis-point increase at the September FOMC meeting.”

Eliza Winger, economist

Some measures did indicate a slight tempering of wage growth down the road. The share of Americans quitting their private-sector jobs eased last month to the lowest level since May 2021.

In the Conference Board report, the share of consumers who said jobs were “plentiful” decreased slightly to 48%. However, six months from now, more respondents expected business conditions to improve. They said they are slightly more positive about their short-term financial prospects.