The US Bureau of Labor Statistics will release May's Job Openings and Labor Turnover Survey (JOLTS), with analysts expecting job openings to come in at 7.86 million from just over 8 million in April. Jefferies senior US economist Thomas Simons joins Morning Brief to discuss the state of the labor market as Wall Street eyes the Federal Reserve's first interest rate cut.

Simons explains that while current labor market data shows the economy is cooling, he prefers to view it as "chilling": "It's more like we're gradually starting to see conditions normalize in a way that didn't seem possible without more widespread damage. And I think that rather than litigate the strength of the economy and try to find reasons why it's not going to be sustained, it's probably better to just kind of take the information at face value — to the extent that economic data has any sort of accurate value anyway — and just sort of go with it because that's clearly what the Fed is doing right now."

As the Fed stresses its data dependence, Simons explains the approach as "this idea that you want to keep your options open. You want to make sure that financial conditions don't trend so far away from this kind of 50-50 stance that the market ends up kind of getting to the point where it sort of backs the Fed into a corner." He believes that for a rate cut in September, there needs to be more data showing we're getting closer to the 2% target for inflation or data showing the labor market is cooling faster. He adds that the election will also be a factor that will weigh on the Fed's decision to initiate a rate cut in September.

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This post was written by Melanie Riehl

Video Transcript

We're going to get a fresh read on job openings with that jolts data measuring job openings and labor turnovers that is expected to show 7.86 million job openings in May.

But that is down from April's 8 million, a little over 8 million there, potentially another sign of a cooling in this labor market.

The data kicking off the start of a slew of complementary employment data ahead of Friday's job report.

So for more on this, we are joined by Thomas Simons.

He is Jeffrey's senior us, economist Thomas.

Thanks so much for coming in studio with us.

Um I was so interested in your notes on this because you talk about these kind of we're ok.

But are we right?

Where do you see the biggest question mark?

Yeah, we're, we're ok for now, I guess, right?

You know, and you know, certainly the labor market, your data suggest that it is cooling, but I like to think of it more as like chilling like when you get like a soup that's referred to as chilled at a restaurant or something, right?

Like it's not, it's not dangerous, right?

You're not like going into hypothermia territory.

It's more like we're gradually starting to see conditions normalize in a way that didn't seem possible without more kind of widespread damage.

And I, I think that rather than kind of litigate the strength of the economy and try to find reasons why it's not gonna be sustained, it's probably better to just kind of take the information at face value to the extent that economic data has any sort of accurate value anyway, right?

Um and just sort of, you know, go with it because it's clearly what the FED is doing right now, right?

Like all of their guidance is rooted in data dependence.

They don't really have a strong view on how things are gonna go beyond just kind of like modeling towards trend.

So, um unfortunately, until the data sends us a more clear signal, that's sort of where we're left to, to, you know, kind of drift, we're in this kind of gazpacho state if you will.

So, you know, all that considered the the fed, I mean, fetcher Jerome Powell, he's actually gonna be speaking today in Portugal.

You've also got New York Fed President John Williams gonna be speaking there as well.

What do you expect if anything to hear from them from their tenor as they're continuing to address their dual mandate, where the data is trending right now and what their potential decisions could look like once we get towards September and then later on in December, as Well, yeah, you know, I, I believe that Powell is likely to kind of continue to convey the same tone that he had after the FO MC meeting a few weeks ago.

Um And really there, it seemed like they presented this rather dovish message about, you know, kind of marking down some descriptors of the economy.

Uh, but emphasizing the fact that there is still this live possibility that there could be another hike at some point, right?

I don't think that there's any data that's come out since then that really slams the door on another hike to the extent that it was open at all last time, right?

Like he was already kind of grasping at straws at evidence that that was gonna be necessary.

Um But it's this, it's this idea that you wanna keep your options open, right?

You wanna make sure that financial conditions don't trend so far away from this kind of 5050 stance that the market ends up kind of getting, you know, uh to the point where it sort of backs are fed into a corner, right?

I I think that September is interesting because we really do need to see more data kind of uh you know, accumulate, that's gonna show that things are trending more towards 2% for inflation or labor market is cooling down perhaps even a little bit faster.

Um There is this kind of issue with being close proximity to the election, the fed has said over and over again that they don't really think that that makes a difference, but the market clearly thinks it makes a difference because we keep talking about it.

So I think that will influence the pricing for September.

I think that, you know, there would have been probably a little bit more of a chance of a rate cut baked into the cake.

Uh, if it weren't for the election in, you know, in for September, but the data can definitely push us over the edge on that.

If we, if we get there, when do you expect us to have clarity on the likelihood of September?

Uh When's the September meeting?

I mean, I think hon honestly, it's, it's probably right after the, the July CP I data is out in, in mid aust uh by then we will have gotten more or less our last bit of real good information on uh you know, the, the dual mandate.

I think the labor market matters a little bit less than inflation.

Um You know, the uh inflation really is the, the sort of North Star for uh for policy right now because the employment numbers haven't limited their options, right?

Like they're, they're able to keep this more restrictive policy because they have labor market data.

That isn't too bad, right?

Like they can't, they couldn't have expected that we were gonna have a 3.5 or lower percent unemployment rate endure, you know, infinitely into the future and not have some kind of inflation problem.

So the, the trick of it is how do you get the unemployment rate up just a tiny bit such that you are closer to Nehru without having a get away from you.

Right?

Because typically, I guess the old saying is like things go, uh you know, economic data goes down on an elevator and up on an escalator.

Of course, it's the inverse for the unemployment rate since we wanna see that lower.

But uh you know, there's definitely a momentum thing there where once it starts going, it typically keeps going.

Uh I don't know that we necessarily are locked into that framework now.

Um just because of the limited supply in the labor market, but you know, can't, can't count on just thinking that things are all of a sudden different this time.

Does, does this also say then that recession is successfully avoided at this juncture for at least for now?

Yeah, I mean, I think that you can look at some of the economic data and say that, you know, whether it's a sector slice or just this big deceleration in growth from the second half of 2023 to this pretty sluggish first half of 2024 you know, the the delta between 4% and a 1.5% growth rate is almost like a recession in and of itself, right?

Like if you think of 2% as being the kind of trend growth rate and then you would go below zero.

That's a drop of about 2.5%.

We just saw a deceleration of about 2.5%.

It's only sort of mathematically, you know, kind of validating that we're not in a recession.

So, uh I think that that may be enough of the medicine, the economy kind of needs in order to get past this um, inflationary impulse and, and get us closer to 2%.

Maybe it's stuck between two and 2.5 over time.

But I think the Fed would be pretty happy with that compared with where we were.