LIVE MARKETS-Labor market churn, surging small business price increases give Fed something to chew on

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TUESDAY DATA: LABOR MARKET CHURN, SURGING PRICE INCREASES GIVE FED SOMETHING TO CHEW ON

Investors were treated to a data triple play on Tuesday, just as monetary policy makers meet, presumably to deliver the 25 basis point rate cut markets are banking on.

The likelihood of a December rate cut sit at 87.4% according to CME's FedWatch; so the data did little to budge those expectations.

Job openings in the United States unexpectedly surged by 6.1% in October to 7.67 million, according to the Labor Department's Job Openings and Labor Turnover Survey (JOLTS) USJOLT=ECI.

Economists expected a 1.1% decrease.

The JOLTS report, which tracks labor market churn, also showed hires fell by about 4.1%.

Firings jumped 4.1%, while quits tumbled by 6.0%. The quit rate - a metric often associated with consumer expectations - dipped from 2.0% of the workforce to 1.8%, suggesting workers are loath to walk away from a gig amid a softening jobs outlook and economic uncertainty.

Pointing out that the quit rate now sits at its lowest level since COVID-era May 2020, ZipRecruiter economist Nicole Bachaud says "Macroeconomic pressures, stubborn inflation, and slow movements from employers are keeping workers in place, at least for now."

"If existing workers are unwilling to move into the newly open roles, the labor force will become increasingly tight, especially as immigration policy continues to weaken the number of foreign-born workers," Bachaud adds.

The mood among small business owners in the U.S. grew a tad sunnier in November, according to the National Federation of Independent Business (NFIB).

NFIB's Optimism index USOPIN=ECI gained 0.8 points to land at a tidy 99.0, a full point north of its 51-year average.

Digging deeper, while six of the ten subcomponents improved, and a greater percentage of survey respondents expect improved near-term sales, the uncertainty index also increased, driven by capex indecision. Forward expectations of business conditions deteriorated. A growing 64% reported that supply chain disruptions are affecting their business.

Respondents who claimed capex over the last six months shed three ppts to 52%, and one out of five plan near-term expenditures, a monthly loss of 3 pps.

The three "most important problems" were labor quality, inflation and taxes, in that order.

“Small business owners are still frustrated by the lack of qualified workers,” says Bill Dunkelberg, NFIB's chief economist. “Despite this, more firms still plan to create new jobs in the near future.”

That last bit bodes well for a softening labor market.

"NFIB’s hiring intentions index has been the best singular indicator of payrolls over the last three years," writes Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "So its sharp increase to +19 in November, to +15 in October, is too important to ignore."

Despite recent signs that inflation is slowly drifting lower, approaching the Fed's 2% annual target, those reporting price growth as their most pressing worry gained 3 ppts to 15%, the highest since March.

The net percentage of participants who reported raising their prices surged 13 percentage points to 34%, which is the highest print since March 2023 and the biggest jump in the history of the survey.

The graphic below shows intentions to raise prices and inflation worries gaining traction, while inflation itself has been steadily, if slowly, on the wane.

Finally, it should be noted that the NFIB is a politically active membership organization whose PAC skews overwhelmingly Republican, according to opensecrets.org/The Center for Responsive Politics.

Finally, the Conference Board's (CB) Leading Economic Index USLEAD=ECI decreased by 0.3% in the long-ago month of September, in line with analyst expectations and a repeat of the August print.

As an amalgamation of ten forward-looking metrics (including initial jobless claims, ISM new orders, yield spreads and S&P 500 price performance, among others), the index relies on official data, which was unavailable during the six-week government shutdown. Ordinarily, the index reflects the prior month's data.

But this time it's three months old - a bit long in the tooth as economic indicators go.

“Weakening expectations from consumers and businesses led the overall contraction in the Index," says Zabinska-La Monica, senior manager of CB's Business Cycle Indicators.

As a reminder that the stock market and the economy are two different things, the chart below shows the LEI against one of its constituents, the S&P 500. While the two have a history of moving in concert, they appear to have diverged toward the end of 2022, around the time the bull market began.

(Stephen Culp)

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