Strong job openings and consumer confidence point to robust employment gains

REAL ECONOMY BLOG | January 30, 2024

Authored by RSM US LLP

December’s strong data on job openings and consumer confidence released on Tuesday foreshadowed another robust month of job gains in January, aligning with our above-consensus estimate for net payroll increases when the employment report is released on Friday.

Job openings in the United States inched up to more than 9 million, surpassing expectations and reflecting strong demand in December because of robust economic activity.

The openings-to-unemployed ratio increased to 1.44 for the month, remaining higher than the pre-pandemic average of 1.2.

The job market continued to show an imbalance in December. This is one reason why we anticipate that the Federal Reserve will keep rates unchanged in its meeting this week and likely in March. That should be enough time for the labor market to cool back to equilibrium.

The increase in openings came from manufacturing, finance, and professional and business services. On the firm-size level, most of the gains came from small firms with fewer than 10 employees, but that might be short-lived because of the holiday month.

That said, with the rate of people quitting their jobs remaining at pre-pandemic levels of 2.2%, combined with the rapid decline in inflation, we believe there is an increasing chance that the Fed’s first rate cut might occur in May rather than June, as in our base case.

Consumer confidence

Another factor supporting this possibility of a rate cut is the improvement in the Conference Board’s consumer confidence to 114.8, its highest level since 2022.

American consumers are feeling optimistic about the economy, with jobs relatively easy to find, strong wage growth and inflation coming under control. The current condition subindex rose to 161.3, the highest since March 2020.

Certainly, the “soft” survey data on consumer confidence and sentiment is trending toward what the strong “hard” data on spending and income has been showing.

The labor differential subindex—a proxy for job gains—also increased to 35.7, the highest since last April, further supporting our forecast for a strong month of job increases.

In terms of inflation expectations, survey respondents reported lower 12-month expectations, with the median dropping to 4.3% from 4.5%.

The takeaway

Looking at all these macro indicators, the Fed should be comfortable in shifting its focus to rate cuts, starting with this week’s meeting.

After the Federal Open Market Committee meeting ends on Wednesday, we will most likely see the Fed’s most dovish outlook in two years reflected in its statement and the subsequent remarks by Chairman Jerome Powell.