Job Openings Reached a Record 10.9 Million in July

It was a bit lighter economic data in a short week, so we want to take an opportunity to call attention to the Northwestern Mutual investment team’s quarterly Asset Allocation Focus.

The Asset Allocation Focus is an incredibly rich supplement to the weekly market updates we provide here. There’s a ton of great information in that document, including an asset-by-asset class survey and our deeper, contextualized outlook for the closing months of the year and into 2022. In this quarter, we outline three primary fears in the market and why they may be less concerning than advertised. We encourage you give it a read if you’re up for deeper analysis or the outlook for a particular asset class.

Now, here a few things that caught our attention last week and a look at what’s ahead.

WALL STREET WRAP

“The Lady Isn’t Tapering”: That’s what European Central Bank President Christine Lagarde said Thursday while she outlined the central bank’s decision to begin to moderately lower the pace of its emergency bond purchase program.

Like the Federal Reserve, the ECB implemented a massive bond purchasing program to keep rates low and conditions accommodative for consumers and businesses during the pandemic. Economies in both regions have roared back from the lows of 2020, and inflation is popping across supply chains and products. A strengthening economy has prompted both banks to consider when to shift policy from emergency interventions and toward something more status quo.

The ECB tiptoed into this policy shift Thursday. While the ECB will technically reduce its total purchases over the next three months, the reduction will simply cancel out a decision in March to incrementally step up bond purchases. In other words, the ECB remains a bond buyer and eager to provide accommodative conditions, and that doesn’t look to be changing any time soon.

Of course, reducing purchases for three months potentially sets the ECB up for a more significant policy discussion in December. However, it will also provide time to gauge the broader economic impact from rising COVID-19 cases, which is weighing on the outlook. We expect the Federal Reserve to walk a similar tightrope on its asset purchases during its meeting later this month.

Beige Book: Economic growth “slightly downshifted” in July and August amid rising COVID-19 cases, according to interviews and data compiled in the Fed’s Beige Book. Manufacturing, transportation, nonfinancial services and residential real estate remain sectors of strength. The deceleration in economic activity was largely driven by a slowdown in dining out, travel and tourism.

This is a key point and a theme we hammer home in our Asset Allocation Focus: While COVID-19 will have an impact on the economy in the coming months, it will not rival what we saw in 2020. As we’ve stated through the year, the coronavirus is impacting a narrower band of industries, we have vaccines, and we know how to adapt behaviors amid the virus. Therefore, even if there’s a market correction driven by COVID-19 news, it will likely be short-lived given sizable cash reserves on the sidelines that would be put to work amid a pullback.

Job Openings Remain in Record Territory: Job openings in the U.S. rose to 10.9 million in July, up from 10.2 million in June, far more than the 8.7 million people who were unemployed and looking for work in July. The previous high for job openings was 7.5 million in 2018, but that level has been well exceeded throughout the year. Do the math: There are enough job openings for every unemployed person to have 1.2 jobs. Ultimately, we think this gap will close, as enhanced benefits have now expired, kids are returning to school, and many employers are sweetening job offers to attract the right workers.

Job opening data came as initial jobless claims fell more than expected in August, reaching 310,000 from 335,000 the month prior. Jobs data will be critical in the months ahead, as the labor market is the Fed’s key measure of “economic health,” and it will shape its policy going forward.

WEEK AHEAD

What We’re Watching: After a quiet week, we’re looking ahead to a busier one. August CPI and Core CPI are due Tuesday, and those will garner quite a bit of attention given the inflation narrative that’s grabbed hold of markets for months. Signs that price increases are decelerating would be welcome for markets. The NFIB small business survey will also be released Tuesday, and the key theme here is labor. How are small businesses doing in such a competitive labor market?

Industrial production, retail sales and consumer sentiment will round out the week.

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