The U.S. labor market appears to be entering a phase of deceleration, with job openings plunging to their lowest level in almost two and a half years in July, according to the latest Job Openings and Labor Turnover Survey (JOLTS) report from the Labor Department. This trend, coupled with a decrease in the number of Americans quitting their jobs to levels last seen earlier this year, suggests a growing lack of confidence in the labor market, reinforcing expectations that the Federal Reserve will maintain the status quo on interest rates in the upcoming month.
Despite this seeming slowdown, the labor market remains relatively tight, with 1.5 job openings available for every unemployed individual in July, and layoffs hovering at historically low levels. However, Conrad DeQuadros, senior economic advisor at Brean Capital in New York, notes that "the degree of excess demand is declining and is coming about through companies reducing the number of vacancies rather than increasing layoffs and unemployment." This indicates a rebalancing of the labor market, a shift occurring without a corresponding rise in unemployment.
US Job Openings Drop to Lowest Level in Over Two Years
According to the latest job report, the US job openings have hit the lowest since March 2021, dropping by 338,000 to 8.827 million at the end of July. The decrease was primarily led by the professional and business services sector with a reduction of 198,000 job openings. In addition, healthcare and social assistance saw 130,000 fewer vacancies, while state and local government positions, excluding education, fell by 67,000.
Labor Market Cooling Down
The Job Openings and Labor Turnover Survey (JOLTS) from the Labor Department also revealed that levels of employees quitting jobs dropped to figures last seen in early 2021. This trend indicates a loss of confidence in the labor market among Americans. This data is also supported by a survey from the Conference Board that showed a cooling perception of the labor market among consumers in August. However, the labor market conditions still remain tight, with 1.5 job openings for every unemployed person in July, and layoffs at a historically low level.
A Decrease in Excess Demand
Senior economic advisor at Brean Capital in New York, Conrad DeQuadros, shared that although the labor market is tight, the degree of excess demand is decreasing. This reduction is primarily due to companies reducing their number of vacancies rather than increasing layoffs and unemployment. He further added that the labor market is not only rebalancing but doing so without pushing up unemployment.
Employment Resilient Despite Interest Rate Hikes
Despite 525 basis points in interest rate hikes from the Fed since March 2022, the labor market remains largely resilient. This resilience is in part due to employers filling positions that opened up during the COVID-19 pandemic. Companies have also been reluctant to lay off workers after experiencing difficulties in finding labor during the pandemic. Consequently, the unemployment rate in July stood at 3.5%, near levels last seen more than 50 years ago.
The Future of the Labor Market
The jobless rate could rise in August, as the Conference Board’s labor market differential, which reflects respondents’ views on job availability, narrowed to 26.2% this month from 32.4% in July. This measure correlates to the unemployment rate in the Labor Department’s employment report. The report also showed hiring dropped 167,000 to 5.773 million, lowering the hires rate to 3.7% from 3.8% in June.
The decrease in job openings and the drop in the number of people quitting jobs are indicative of a cooling labor market. However, the resilience shown by the market despite the interest rate hikes and the pandemic is commendable. The future of the job market seems uncertain, but it will ultimately depend on a variety of factors, including the state of the pandemic and the policies implemented by the government and the Federal Reserve.