Job Openings Drop More Than Expected, Fueling Speculation of Fed Rate Cut

Job Openings Drop More Than Expected

New data from the Bureau of Labor Statistics shows that job openings fell more than anticipated in July. According to the report released Wednesday, there were 7.67 million job openings at the end of July. This figure marks a drop from the 7.91 million job openings recorded in June. The July number represents the lowest level of job openings since January 2021.

Revised June Figures and Hiring Trends

June’s job openings were revised downward from the initial 8.18 million to align with the new figure. Economists surveyed by Bloomberg had forecasted 8.1 million openings for June. The latest data also reveals that 5.5 million hires occurred during July, a slight increase from June. The hiring rate edged up to 3.5% from 3.3% in the previous month. Additionally, the quits rate—a measure of worker confidence—rose to 2.1%, up from 2% in June.

Labor Market Cooling Evident

Oxford Economics’ senior US economist, Nancy Vanden Houten, noted that the latest data suggests a continued easing in labor demand. This trend is consistent with Federal Reserve Chair Jerome Powell’s comments from late August. Powell observed that the cooling in the labor market had been “unmistakable” and mentioned that downside risks to the Fed’s employment mandate had increased. He indicated that the Fed does not seek further cooling in labor market conditions.

Impact on Federal Reserve Policy

The cooling labor market has prompted speculation that the Federal Reserve might cut interest rates more aggressively. UBS chief US economist Jonathan Pingle stated that it would require significant evidence of labor market weakness to move the Fed consensus toward a 50 basis point rate cut in September.

Ratio of Unemployed to Job Openings

Further evidence of labor market cooling is reflected in the JOLTS report’s details. The ratio of unemployed workers to job openings fell to 1.07 in July. This figure is below the pre-pandemic average seen in 2019 and aligns with data from April 2018. Renaissance Macro’s Neil Dutta highlighted this decline as a sign that labor demand has cooled further than before the pandemic.

Market Reactions to Drop in Job Openings and Future Outlook

Following the release of Wednesday’s data, markets adjusted their expectations for the Federal Reserve’s September meeting. The CME FedWatch Tool now indicates a nearly 50% chance of a 50 basis point interest rate cut by the end of September, up from 38% the previous day.

Upcoming Economic Reports

A more detailed assessment of the labor market is expected with the release of the August jobs report on Friday. Economists anticipate this report will show that the July data might have overstated the weakness in the labor market. Bloomberg’s consensus projections suggest that the US economy added 165,000 jobs in August. Additionally, the unemployment rate is expected to decrease to 4.2%, marking the first decline since March.

As job openings drop more than expected, investors and economists are closely monitoring the labor market for further signs of cooling. This data may influence the Federal Reserve’s decision on interest rates, with market participants speculating on a potential rate cut. The upcoming August jobs report will provide additional insights into the state of the labor market and its impact on economic policy.