The mixed signals from data on job openings and the ISM manufacturing index, both released on Tuesday, offer a nuanced picture of the economy as the Federal Reserve transitions to a period to lower rates.
During the transition of interest rates, not everything will go in the same direction.
Elevated interest rates remained a drag on manufacturing activities, together with the slowdown of overall demand from last year, according to data released by the Institute for Supply Management on Tuesday.
Read more of RSM’s insights on manufacturing, the economy and the middle market.
The ISM’s manufacturing index for September stayed unchanged at 47.2, indicating a contraction of overall activity for the sixth consecutive month. The drop was across the board, with most subindexes posting declines.
Manufacturing jobs did not look great in September as the ISM employment subindex continued to drop for the fourth straight month. But that decline was not a reason to expect overall job gains to post a big drop because manufacturing accounts for only a small part of overall employment in the United States.
The data supports our call for a total increase of 120,000 jobs when the employment report is released Friday instead of the median consensus of 150,000.
At the same time, job openings rose above all forecasts to 8.04 million in August from 7.71 million in July. Layoffs also looked much better, falling by 105,000 from the prior month.
The demand-supply balance within the labor market improved slightly with the vacancies-to-unemployed ratio rising from 1.076 to 1.13 in August.
Still, the hiring rate remained subdued, a sign that job gains should remain less impressive than what the market is predicting.
We do not see a combination of reduced hiring and fewer layoffs as a contradiction.
The economy is at full employment, and that should put a ceiling to new jobs added. At the same time, full employment means that companies should not be in a position to let their workers go.
The two work hand in hand to reaffirm that the economy has achieved a soft landing.
If the Federal Reserve follows through on what it has signaled through next year, manufacturing activities should rebound amid lower borrowing costs while the labor market remains on strong footing.
