Job openings in the United States dropped more than expected in July, reflecting a cooling labor market and further cementing the chances of the Federal Reserve cutting rates later this month.
According to new data from the Bureau of Labor Statistics, the number of open positions fell to 7.67 million at the end of July, down from 7.91 million in June.
This marks the lowest level of job openings since January 2021, signaling a potential shift in labor market dynamics.
The June figure was also revised down from an initial estimate of 8.18 million openings, highlighting a more significant decline than previously reported.
Economists surveyed by Bloomberg had anticipated that job openings would remain at around 8.1 million in June, underscoring the extent of the slowdown.
Hiring and quit rates provide mixed signals
Despite the drop in job openings, the hiring rate saw a slight increase in July.
The Job Openings and Labor Turnover Survey (JOLTS) indicated that 5.5 million hires were made during the month, with the hiring rate ticking up to 3.5% from 3.3% in June.
This suggests that, while job openings have decreased, employers are still actively hiring.
Additionally, the quits rate, often viewed as a measure of worker confidence in the job market, rose to 2.1% in July, up from 2% in June.
This slight uptick indicates that workers remain confident enough to leave their current positions, believing they can find new opportunities elsewhere.
Economists note signs of labor market easing
Economists have pointed to the latest data as evidence of a labor market that is gradually cooling.
Oxford Economics senior U.S. economist Nancy Vanden Houten stated, “The demand for labor continues to ease, which could alleviate some inflationary pressures.”
Federal Reserve Chair Jerome Powell echoed this sentiment in a late-August speech, noting that the cooling in the labor market has been “unmistakable.”
Powell emphasized that the labor market is unlikely to be a source of elevated inflationary pressures shortly, stating, “We do not seek or welcome further cooling in labor market conditions.”
Markets looking at a steeper rate cut
The cooling labor market has fueled speculation that the Federal Reserve may cut interest rates in the coming months.
“The monthly measure of US jobs opening fell from a revised 7.91 million to 7.67 million, notably lower than the consensus forecast and cementing a Fed rate cut in two weeks. Layoffs rose to 1.76 million,” said Mohamed A. El-Erian, chief economic advisor at Allianz.
Economists suggest that further signs of labor market deterioration could push the central bank to take more aggressive action.
UBS chief U.S. economist Jonathan Pingle remarked, “Further ominous warnings on the labor market front could increase the likelihood of a 50 basis point rate cut in September.”
Following the release of Wednesday’s data, markets adjusted their expectations, with the CME FedWatch Tool indicating nearly a 50% chance of a 50 basis point rate cut by the end of the Fed’s September meeting.
The focus now shifts to the upcoming August jobs report, which will provide a more comprehensive view of the labor market.
Economists surveyed by Bloomberg expect the report to show the U.S. economy added 165,000 jobs in August, with the unemployment rate expected to tick down to 4.2%.
This would mark the first decrease in the unemployment rate since March and could provide further insight into the ongoing labor market cooling.
As the labor market continues to evolve, all eyes remain on the Federal Reserve and its next moves in response to the changing economic landscape.
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