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1.  US Job Openings Fall to A Three-Year Low as Labor Market Cools

·         Job vacancies (openings) fell to 8.49 million, much lower than estimates and the lowest in three years.

·         Quit rates also eased further in March and new hiring slowed.

What you need to know: In March, US job openings hit a three-year low, with a decline to 8.49 million positions. Quits and hiring also slowed, signaling further softening in the labor market. The recent Bureau of Labor Statistics (BLS) JOLTS report1 revealed these trends, surprising analysts with figures lower than expected.

Why it matters: The report reflects the desired cooling in the labor market sought by the Federal Reserve, with a slowdown in worker demand indicated by fewer job openings rather than outright job losses. As policymakers convene, interest rates are anticipated to remain at their highest level in two decades. Attention will be on Chair Jerome Powell's remarks for insights into potential rate cuts.

Now the Dunham Deep Dive: The latest JOLTS data shows that the labor market continues cooling – to put this into perspective:

·         The job openings sink to a three-year low – indicating that companies are hiring less.

·         The “quit rate” fell to 2.1% - hitting a four-year low – which implies that people are holding on to their current jobs as they feel less confident in finding new higher paying ones.

·         The hiring rate fell to 3.5% - the lowest level since the start of the pandemic.

·         The employment cost index (ECI) – the change in the hourly labor cost to employers over time – for Q1/24 remained elevated at 4.3% year-over-year – showing that labor costs remain a burden for corporations.

With the job market coming into better balance (without the demand for labor grossly outpacing the supply for labor as we saw since the pandemic), this should also continue to put pressure on wage growth.

To highlight this: the ratio of job openings to unemployed individuals declined to 1.3, matching the lowest level since August 2021. This figure – which I believe is closely monitored by Fed officials - has significantly eased over the past year. For instance, in 2022 it peaked at 2 to 1 (aka two job openings for every unemployed person).

But - more importantly - I want to point out the divergence in the labor data. . .

As detailed above, the recent JOLTS (U.S. employment data) looked pretty bleak. But the recent ADP report2 (private payroll data) showed that private employees hired far more than forecasted in April while pay growth cooled.

These are two completely different reports.

Yet only one can be right. . .

PS – after the April 2024 BLS revisions3 – there was further evidence showing a cooling labor market. The BLS data showed that during the third quarter of 2023, the U.S. saw a net employment decline of 192,000 jobs in the private sector - marking the first negative reading since the peak of COVID-19 in 2020 (see chart below).

·         Aka there were more job losses than job gains in Q3/23.

Something to monitor.

A graph with a line going down

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Figure 1: April, 2024

2.   Japanese Yen Hit’s 34-Year Low Against the Dollar: Authorities Stepped In?

·         The Wall Street Journal reported that Japanese financial authorities had intervened in the market to try and stem the yen’s decline, citing sources familiar with the matter.

·         The yen’s drop to 160 per dollar quickly made headlines and flooded social media platforms across Japan as the currency plunged to a multi-decade low.

What you need to know: On Monday4, the yen surged against the dollar, prompted by reported yen-buying intervention by Japanese authorities. The dollar dropped to a low of 154.40 yen from its earlier high of 160.245 – marking the weakest point for the yen in the last 34 years. Japanese banks were selling dollars for yen, according to banking sources. The Wall Street Journal also reported Japanese financial authorities' intervention in the market, as cited by individuals familiar with the matter.

Why it matters: Some argue that government intervention in the yen, which has sharply declined since the Fed began raising rates in 2022, was overdue. While a weaker currency typically benefits Japanese exporters and boosts inbound tourism, households are feeling the strain as wages fail to keep pace with rising prices. With inflation at its highest level in decades, consumers are cautious about spending, contributing to widespread dissatisfaction with the economy. Masakazu Tokura, head of Japan's largest business lobby, Keidanren, and Mitsuko Tottori, CEO of Japan Airlines, both voiced concerns about the yen being 'too weak' and expressed a desire to see it return to around 130 per dollar.

Now the Dunham Deep Dive: This week, we saw the yen plunge to a 34-year low, only to quickly rebound – which is believed to have been because of Japanese authorities finally stepping in to try and backstop the sinking currency (keep in mind, the yen is the third most used5 currency for global reserves as of Q4/2023).

Now, a big reason for this weakening yen is the interest rate differential between Japan the U.S.

·         For example, if the Fed is holding rates higher (over 5%) and the Bank of Japan is holding rates at 0%, that’s a huge gap – thus money flows to the dollar to collect a higher yield and reduced volatility (what Japanese saver wants to hold a currency that’s sinking?)

Now, I could go on and on about this topic – but let’s tie it back into the current “currency and trade war” theme I have written to you about (read here and here if you missed it). . .

In short, a weaker yen makes Japanese exports more attractive. But it also makes it more costly for Japanese citizens to import.

The problem now is that a weaker yen not only affects Japan but also its competitors like South Korea and the Philippines. But most importantly, it poses challenges for China in maintaining the stability of the yuan against the dollar – which is already weakening as well.

·         Any disruption to China's managed currency could have significant repercussions, especially in emerging markets where it serves as a reference for regional currencies.

Three of the world’s four largest economies are export-driven (China, the E.U., Japan) – thus if one gets an advantage from a weaker currency (say Japan), the others may retaliate to try and weaken their currencies to boost their exports.

Thus, a very weak yen is a global concern.

Now, if it was weakening within normal parameters (not sinking like a stone), it would be acceptable, but I believe the current situation is not sustainable and will cost the Bank of Japan a significant sum in order to try and defend its value (aka sell their surplus dollars and buy yen on the open market).

·         To put this into context, it’s estimated6 that Tokyo spent roughly 5.5 trillion yen ($35 billion) in Monday's intervention alone.

Let’s see how it plays out.    

A graph showing the growth of the dollar

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3.  Is The E.U. Economy Taking a Big Step Backwards? It Appears So

·         E.U. nations are trying to move back to austerity (aka belt-tightening) – especially for government budgets after exploding post-020.

·         While noble, stagnant growth and productivity should be the cause for concern, not increasing public debt.

What you need to know: The ethos of the "Swabian housewife," (aka a German term that refers to a thrifty homemaker who manages the family budget without overspending) is resurfacing across Europe7 after running huge deficits since 2020. France is contemplating over €20 billion ($21 billion) in spending cuts to address a mounting deficit, under pressure from opposition voices evoking memories of the Greek debt crisis. Italy, grappling with pandemic-era subsidies straining its budget, is preparing for fiscal adjustments. The International Monetary Fund expresses concern over their growing debt burdens. Former Italian Prime Minister Mario Monti emphasizes a lack of awareness and resolve to address the debt issue.

Why this matters: While the E.U.’s budget deficit is a concern, pursuing strict fiscal may come with a high cost. For instance, higher taxes and spending cuts could dampen investment, public services, and economic growth – all of which are happening at a time when Europe's future growth prospects appear bleak, with stagnant growth and demographic decline posing challenges.

Now the Dunham Deep Dive: The E.U is about to recede into the very issues that amplified its decade-long malaise (between 2011 and 2020) after the Greek debt crisis kicked off issues throughout the Eurozone.

I'm talking about Europe wanting to move back towards financial austerity (aka a set of economic policies, usually consisting of tax increases, spending cuts, or a combination of the two, used by governments to reduce budget deficits).

Now – while this sounds like a good idea – the issue is that the Eurozone can’t seem to get growth organically (from the private economy). There are just too many headwinds (as detailed above).

A big way to offset this malaise is by having the government run huge deficits (remember, the government spending becomes someone's income elsewhere, which fuels sales, and on and on).

·         Although this does have its own problems – such as inflation, unsustainable debt levels, and inefficient investment.

In fact, there’s an argument that the big reason the U.S. recovered better than most after 2008 and 2020 (compared to other major economies – like the E.U.) is due to the fact the U.S. runs massive deficits.

Thus, it’s important to monitor what the E.U. does in the coming quarters – especially since taken together, the E.U. is the third largest economy in the world (behind the U.S. and China).

Something for you to think about.

A graph of the price of the euro zone

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Figure 2: Bloomberg, March 2024

Anyways, who knows what will happen? Maybe this is just noisy data.

As usual, just some food for thought.

Have a great rest of your weekend.










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